Beruflich Dokumente
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Also Published In
By WILLIAM M. GOUGE
SHORT HISTORY
OF
AN INQUIRY
INTO THE
[1833]
With An Introductory Essay
"William M. Gouge and the Formation of
Orthodox American Monetary Policy"
By JOSEPH DORFMAN
Reprinted 1968 by
ABJ::
Gift
Publiah~I
Copy
PRINTED IN THE UNITED STATES OF AMERICA
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and the government. If the government deposited its balances in the banks, the latter would
then have larger reserves upon the basis of
which they might expand; if the government
allowed itself the privilege of borrowing from
the banks, such a practice would surely lead to
inflation; and even if the government merely
accepted bank notes in payment of taxes, the
result would be inflationary. lJnder the sub
treasury system, however, there was a continual
flow of gold between the banks and the treasury,
and this fact served as a constant check on the
banks, "not as does the foreign demand at uncertain intervals of months and years, but daily,
nay, hourly." The only rational objection, he
thought, was that even so, the check 'was not
strong enough.
[Most important of all] ... a larger quantity
of specie would be in circulation, thus bringing
the money supply a step nearer that of a hard
money system.... It was his contention that, if
the government received and paid out only coin,
additional specie would be imported, and thus
the supply of specie in circulation would be increased and the volume of bank obligations
decreased. The increase of specie, he claimed,
would have the further advantage of producing
an increased supply of reserve money available
to the banks upon the contraction of their loans.
He pointed to the advantage of the "constitutional treasury system" in furnishing an improved means of interregional transfer of funds.
Finally, he contended that in the case of a large
payment of gold by the government there would
be no disturbance to business, whereas, if the
banks were acting as the fiscal agents of the
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p. 261.
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so split on bank reform that not too much dependence should be placed on the church on this question.
Suppose people's minds will not "-yield to the disinterested effort of political economists, to the more
selfish efforts of ambitious politicians, or even the
heavy artillery of the church. What then' We must
do what we can to check the evils we cannot cure. To
preserve the balance between evil and good in the
world, is all that, according to some writers, can be
done. If moral effort ceases, evil will quickly predominate. ' '40
The obituary of Gouge which appeared in that
conservative journal, The Bankers' Magazine,
summed up the dominant opinion on the man and
his book: He was "exceedingly well informed on
all questions of finance" which he discussed with
considerable skill and his book was" a very able and
clear exposition of the principles of banking and
of the mistakes made by our American banking
institutions. ' '41
Gouge to Henry Lee, November 7, 1840, Lee Papers.
Editorial, "William M. Gouge," The Ban-kers' Magazine and Statistical Register, September 1863, p. 242.
40
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JOSEPH DORFMAN
Columbia University
October 1967
.h.
~ .$.
.?f'__"-HtI ~.~
SHORT HISTORY
OF
UNITED STATES,
INCLUDING AN ACCOUNT OF
AN INQUIRY
INTO THE
BY WILLIAM M. GOUGE.
BJ\ilauelpuia :
PRINTED BY T. W. U8TICK.
AND FOR U.LE, BY GRIGG & ELLIOTT, NO. 8 ~ORTIt POURTH f'TREET, l"RIAlI m'NT,
NO. 19 NORTH THIRD ST., lIOGAN & THOMPSON, NO. 139t MARKET ST.
1833.
by WILLIAM M.
CONTENTS.
Preface, -
Page!!
PART I.
An Inquiry into the Principles of the American Banking
System, with considerations of its Effects on Morals and
Happiness.
CHAPTER I.
Importance of the Subject, 1
Of Real .Money, "
II.
7
Of Barter, Leger Entries, Bills of Ex"
III.
change and Promissory Notes,
- 18
IV.
Of Banks of Discount,
- 21
" V.
Of Banks of Circulation,
-23
"
VI.
General Effects of this System,
- 26
" VII.
Effects on Credit,
- 34
" VIII.
The same Subject continued,
- 37
IX.
Of Banks as Corporations,
- 41
X.
Ofthe Popular Arguments in favor of
"
Banking,
- 45
XI.
Of Restrictions on Banking Corporations, 50
XII.
Of the Essential Qualities of Bank Notes, 53
" XIII.
Of the' Convertibility' of Bank ~ledium, 58
"
Of the' Elasticity' of Bank :Medium, 62
XIV.
ls Paper Money cheaper than Specie 1 - 64
XV.
Of the Tax paid by the People to the
XVI.
Banks, - 67
Of the Formation of Bank Capitals, 70
XVII.
XVJII. Of Speculations in Bank Stock, and
of other Stock Jobbing, - 73
the Ways and Means by which
" XIX. Of Charters
are Obtained and Renewed, 78
Summary View of the Advantages
XX.
which the System gives to some
lUen over others, - 84
Of the Remote Consequences of tho
XXI.
System,
- 90
~ 94
XXII. Effects on l\foral Character,
"
- 97
XXIII. Effects on Happiness, XXIV. Of the Evils that would be Produced
by a. Sudden Dissolution of the
System,
- 101
iv
CONTENTS.
Pages.
CHAPTER XXV.
XXVI.
XXVII.
"
XXVIlI.
"
XXIX.
"
xxx.
"
XXXI.
- 103
- too
- III
- 117
- 123
- 128
- 135
n.
"
"
"
"
"
"
"
"
"
"
"
"
"
"
"
"
"
"
"
"
"
"
I.
3
7
2f)
31
38
42
55
64
73
85
93
101
121
127
133
139
151
165
174
187
196
202
219
227
237
PREFACE.
A brief exposition of the principles of Banking, wa$
all that the writer originally intended to give.
In the
first draft of the work, tr.e historical sketch was part of a
chapter. It has been extended to its present length, from
a belief that a tolerably full account of incidents in the
fIistory of American Banking would be acceptable to the
reader.
If additional illustrations of the nature of the system
were wanted, they might be derived from its history in
Great Britain. These, our Ii mits will not permit us to
introduce. We have, however, room for a sketch of the
changes of opinion that have taken place in that country,
in regard to paper money.
Mr. Joplin, in his History of the Currency Question,
after collating different passages in the treatiso on "The
Wealth of Nations," gives the following as a summary of
the views of Adam Smith.
"1. That he would prefer the circulation between consumers or what may be termed the consumptive circulation, to be metallic: but that he thought it a greater advantage for the circulation between dealer and dealer, to
be paper; admitting at the same time,
"2. That if Bankers were subjected to the obligation of
an immediate and unconditional payment of their notes in
coin on demand, as soon as presented, their trade might,
with safety to the public, be rendered in all other respects
perfectly free.
"3. That the amount of notes which the country reO'
quired was an amount equal to the sum of metallic money
which would circulate if there were no paper.
"4. That this amount could not be exceeded without
producing an immediate demand for gold to be sent abroad
previous to its passing into general circulation: by which,
of course, no derangement of prices, from excess of issues,
vi
PREFACE
PREFACE.
vii
depreciation, guineas began to be regarded as an unnecessary incumbrance. So strong a hold did this notion take
in the minds of men, that when Bank notes passed in the
market at a considerable discount, many writers affirmed
that paper had not fallen, but that gold had risen in
value.
Mr. Boyd, Lord King, and other Economists, showed the
incorrectness of this opinion, and ~Ir. Ricardo placed its
erroneousness in a strong point of view, in a pamphlet pub.
lished in the latter part of the year 1809, entitled, " The
high price of Bullion, a proof of the depreciation of Bank
notes." This work, .l\lr. Joplin avers" was the immediate
cause, and formed the ground-work of the Report of the
Bullion Committee."
" The principles of this Committee, supported by a host
of writers, became now," says the historian, " the received
opinions upon the subject, aild they were as follows:
" They entirely agreed with Smith in the general principle, that if Banks were obliged to pay their notes in specie on demand, the trade might, in all other respects, be
left perfectly free. They agreed with him, that the sum
of paper in circulation ought not to exceed the sum of me
tallic money that would be in circulation if there were no
paper: and they further agreed with him, that, if this
amount of paper was not exceeded, no great demand for
gold for exportation would ever arise: and that, if it
were exceeded, a demand would arise for exportation, adequate to the excess. But in every other respect they differed from him, and laid down principles equally new and
important.
" In the first place, they repudiated the principle that
Banks could not issue to p.xcess if they confined themselves
to advancing money on real bills of exchange. This principle they proved totally incorrect.
" In the next, they denied that an excess of issues would
be discovered by the merchant previously to the money's
entering into consumptive circulation, and be returned upon
the Banks for gold: though they admitted that an excess
of issues would produce a demand upon the Banks for
gold for exportation. But this, they proved, would take
place after the paper had been introduced into circulation,
and had depreciated the value both of itself and of the gold
yiii
PREFACE.
in which it was payable; that gold. by this operation, becoming less valuable in England than in other countries,
would be exported to ,other countries; that the excess of
paper would be returned upon the Banks in demand for it,
to be sent abroad until the excess was withdrawn; and
that the value of both paper and gold would then rise to
its previous level, and the exportation of gold cease. This
doctrine negatived the idea of Smith, that an excess of issues did not find its way into consumptive circulation. It
was contended, on the contrary, that prices must be raised
above their proper level, before the exportation of gold
could be brought about.
" Thus, two important principles of Smith's which would
be very much calculated to affect his views as to the value
of a paper currency, were set aside: 1hst, that the Banks
had an easy rule by which to guard against excess;
and next, that if they did issue to excess, no derangement
of prices would be produced by it; that the injury would
be felt by themselves, and not by the public.
"To this derangement of prices, however, which according to their views must precede an importation of
gold, the Committee did not appear to attach much importance.
"In the third place, they contended, that the issues ofthe
Bank of England regulated those of the country Banks. This
theory was new, though appearing to be suggested and
borne out by experience."
When Mr. Joplin says that the principles of the Bullion Committee became the received opinions, we are to
understand thereby that they became the opinions of a
large part of the British nation. 'I'he Anti-Bullionists w~re
so closely wedded to their favorite theory, that neither f~~ts
nor reasonings could separate them from it. Such was
their influence, and such was the force of circumstances,
that, though it had been determined that specie paymentd
should be resumed one year after the close of the war, the
Government delayed, for four or five years, to take the necessary measures for effecting this object.
In May 1821, .he Bank of England regularly resumed
the payment of gold on demand.
In the twenty-four years in which inconvertible paper
was the circulating medium, many hundred millions had
PREFACE.
ix
PREFACE.
PREFACE.
xi
xii
PREFACE.
AN INQUIRY
INTO THE PRINCIPLES
OF THE
CHAPTER Y.
magnitude of whose deposits commands enormous discounts at all times, and who, being behind the curtain,
know when to buy and' when to sell. I am of opinion that
these vibrations inflict evils which close not with mercantile speculation; that they tend to unhinge and disorder
the regular routine of commerce; and introduce at onemo..
luent a spirit of wild and daring speculation, and at another,
a prostration of confidence, and stagnation of business:
that these feelings arc transferred from the counting-house
to the fire-side; that the visionary profits of one day stimulate extravagance, and the positive losses of another engender spleen, irritation, restlessness, a spirit of gambling
and domestic inquietude.
" I appeal to the commercial history of our country, during the last e-even years, and to the aching hearts of many
of my fellow-citizens, for the truth of these reflections.
" I wish not to be misunderatood. Let no one suppose
me so weak as to attribute every unfortunate speculation,
and every fluctuation in prices, to an undue management
or organization of our Banking Institutions. That would
be a folly, from the imputation of which I trust the preceding remarks will ,rescue me. ~rhere are commercial
fluctuations, and they are wholesome. 'I"lhey invigorate
enterprize, and their benefits are directly felt by all. There
are Banking fluctuations, and they are highly deleterious.
'fhey intoxicate enterprize, only to enfeeble it; and the
benefits are restricted to a few.
"This evil of Banking fluctuation, ends not with the
mercantile community. It extends to every thing that
commercial enterprize reaches. It injures the farmer and
the mechanic, in the precise ratio of the vacillations of
public feeling.
" 'rhe injuries which it has inflicted have been as universal as the insinuation of bank paper; and the peculiar
manner of its operation renders it doubly distressing. It
does not affect the wealthy man, because he can always
control discounts; but it f.ills with single and dreadful severity upon the industrioils' poor man, whose capital is not
sufficient to command permanent accommodations; upon the
inexperienced, who purchase knowledge by a sacrifice of
property, and upon the merchant whose skill and sagacity
Btre superior to his wealth."
'
ljIlI
..
OF REAL MONEY.
and bountiful seasons, amongst an enlightened, industrious, and enterprizing people, comparatively free from taxation, unrestrained ln our pursuits, possessing abundance
of fertile lands, and valuable minerals, with capital and
capacity to improve, and an ardent disposition to avail ourselves of these great bounties.
"Calamities of an injurious and demoralizing nature,
occurring with singular frequency. amidst a profusion of
the elements of wealth, are well calculated to inspire and
enforce the conviction that there is something radically erroneous in our monetary system, were it not that the judgfnent hesitates to yield assent, when grave, enlightened,
and patriotic Senators, have deliberately announced to the
public, in a recent report, that our system of money is in
the main excellent, and that in most of its great principles,
no innovation can be made with advantage."
The "grave, enlightened, and patriotic Senators," to
whom Mr. 'Vhite alludes, are those who, with l\'1r. Smith,
of 1\fary]and, at their head, made a report, in the year
1830, in which they represented certain kinds of Bank
paper as being as good as gold, and even better. If their
opifJion is correct, it ought to be confirmed. If it is not
correct, its erroneousness ought to be exposed; for error
in such a subject as this, may be productIve of incalculable
mischief.
CHAPTER II.
Of Real l1'[oncy.
Paper money is the foundation of the American Banking System. But, as, without a knowledge of what is genuine, it is impossible to have a clear conception of what is
spurious, it will be necessary to give a statement of the
qualities and functions of real money.
Money is not, as was asserted by a late Secretary of the
Treasury, (Mr. I.) "merely the representative ofproperty."
l\loney of gold and silver is property-is wealth. A hundred dollars in silver can no more be considered as the
lepresentative of a hundred dollars' worth of flour, than a
OF REAL MONEY.
OF REAL MONEY.
10
OF REAL MONEY.
culating medium. Men chose gold and silver for the material for money, for reasons similar to those which induced
them to choose wool, flax, silk, and cotton, for materials for
clothing, and'stone, brick, and timber, for materials for
building. They found the precious metals had those specific qualities, which fitted them to be standards and measures of value, and to serve, when in the shape of coin, the
purposes of a circulating medium. rro this use they are
admirably adapted:
1. Because they are divisible into extremely minute
portions, and capable of re-union without any sensible los8
of weight or value; so that the quantity may be easily
apportioned to the value of the articles of purchase.*
2. They have a sameness of quality all over the world.
The difference between iron from different parts of our
own country and of Europe, is well known to all dealers
in that article. 'rhe copper of Siberia is superior to that
of Germany, while that of Sweden is better than that of
Siberia, and that of Sweden is surpassed by that of Japan.
But, one grain of pure gold is exactl y similar to another,
whether it comes from the mines of Europe or of America,
or from the sands of Africa. Time, weather, and damp,
have no power to alter the quality: the relative weight of
any specific portion, therefore, determines its relative quan
tity and value to every other portion; two grains of gold
are worth exactly twice as much as one.
3. Gold and silver, especially with the mixture of alloy
that they admit of, are hard enough to resist very considerable friction, and are therefore fitted for rapid circulation.
4. Their rarity and consequeut dearness are not so great,
that the quantity of gold or of silver, equivalent to the
generality of goods, is too minute for ordinary perception:
nor, on the other hand, are they so abundant and cheap,
as to make a large value amount to a great weight.
5. They are capable of receiving a stamp or impression,
certifying the weight of the piece, and the degree of its
purity.
6. They are liable to less variation than any other arti.
cle, from changes in the relations of supply and demand"
including the cost of production among the conditions of
supply.
See Say, Bool" Chap. xxi, Section 2.
OF REAL MONEY.
11
12
OF REAL MONEY.
OF REAL MONEY.
13
14
OF REAL MONEY.
OF REAL MONEY.
15
16
OF REAL MONEY.
OF REAL MONEY.
17
18
OF BARTER,
&c.
CHAPTER III.
OF BARTER,
&c.
19
20
OF BARTER,
&c.
after having exhausted their cash means, strain their credit. Cash and credit are then competitors in the market,
and raise prices on one another. In the year 1825, a year
of great speculation, the amount of bills of exchange, negotiated in England, was, according to the returns to Parliament, 600 millions sterling. Supposing one-eighth of
these in circulation at the same time, this branch of the
commercial medium of England amounted in that year to
75,000,000 pounds.
But the rise of prices produced by these occasional multiplications of the representatives of private credit, is always temporary. At the end of a given period the balance of the running account is demanded, and payment of
the promissory notes, and of the bills of exchange, is required in money. If they are paid, their effect on prices
ceases. The result is the same, if they are dishonored.
In 1826, the amount of bills of exchange negotiated in
England, was 400 millions. Supposing one-eighth part in
circulation at one time, this branch of the commercial medium of England amounted, in this year, to 50 millions,
and was one-third less than in the year preceding.
In countries where the money is of a sound character,
and the state of credit sound also, leger entries, bills of
exchange, and promissory notes, serve rather to keep prices on a level, than to cause them to fluctuate. In some
seasons of the year, as when crops are brought to market,
or cargoes arrive from foreign ports, there is naturally mor~
trade than in other seasons. By the use of private credit
payments are divided among the different months more
equally than would otherwise be practicable.
Thus, in whatever way trade is carried on, whether by
barter, running accounts, promissory notes, or bills of exchange, or money, one principle of valuation is adhered to
in countries having a sound money system. The cash
sales regulate the credit sales, and the cash prices regulate
the credit prices.
If the money of a countly is paper, whether issued by
the government, or by a corporation, the expressions of
value in the running accounts, promissory notes, and bills
of exchange, are according to the new standards and
measures of value.
Into the nature of these we shall inquire in other
chapters.
OF BANKS OF DISCOUNT.
21
CHAPTER IV.
Of Banks of Discount.
Let us suppose that all the Banks in the country were
destroyed, and that our circulating medium consisted exclusively of gold and silver coin. In such a state of affairs,
every merchant would keep about his person, or in his
house, his whole stock of money.
Let us next suppose an Office of Deposit, established in
anyone of our large towns. For the sake of security against
fire and robbers, the wealthy would here deposit whatever
money they did not require for immediate uses. All the
money employed in the wholesale traue would thus become
the deposit of the Bank. It might be drawn out a few
times, but as every large dealer would keep an account at
the Bank, the absurdity would soon become evident, of
drawing out the money by one man, that it might be deposited in the same place by his neighbor. The amount
would, therefore, be transferred from the credit of one merchant to that of another, and the Bank would become an
Office of Transfer as well as of Deposit. The only money
that would circulate, would be that employed in retail trade.
All wholesale transactions would be adjusted by checks on
the Bank, and transfers on its books.
The Bank having issued no paper, the only demand on
it would be for specie to send abroad. This demand would
be limited, for every merchant would make it a rule to
retain enough money in Bank for his domestic trade. It
would be only as the trade of the town fluctuated, that the
amount of money in the vaults of the Bank would fluctuate. We may suppose that it rose as high, sometimes, as
six millions, and sunk as low, sometimes, as four millions.
In a little time, t~e Bank would discover the lowest amount
to which its permanent deposits would be liable to be reduced: and it might lend nearly the whole of this amount
without mu~hriskofdiscovery. The money might, indeed,
be sent abroad by him to whom it was lent, but he by
whom it had been deposited would still have a credit at
the Bank, and as all the wholesale transactions of the town
22
OF BANKS OF DISCOUNT.
OF BANKS OF CIRCULATION.
23
CHAPTER V.
Of Banks of Circulation.
Our American Banks are not contented with the profits
derived from lending the money of depositors toother people.
As ~oon as the first instalmel1t of the capital is paid in,
the Bank commences issuing notes. To those who come
to borrow, it lends paper or coin. The paper being ex-
24
OF BANKS OF CIRCULATION.
OF BANKS OF CIROULATION.
26
CHAPTER VI.
2'7
had been at any time since the resumption of specie payments; but the money rate of wages was hardly affected.
if wages are not the first to fall on a contraction of is!ues, it is because the effects of the contraction fall unequally on different kinds of labor. " Contractions" never
proceed far, without breaking up some productive establishments. Some men are thus deprived of employment:
they enter into competition with the workmen in other establishments, and finally reduce wages in the branches
of business not immediately affected by the contraction
of Bank issues.
Hence the complaint we sometimes hear of" all branches of trade being overdone." A great number of enterprizes, undertaken with a cheering prospect of success when
the Banks "make money plenty," corne to an unfortunate
conclusion when the Banks "make money scarce." As
one man is thrown out of employment, his effective demand for the product of his neighbor's labor is diminished,
and he, perhaps, becomes the competitor of his neighbor,
instead of his cu~tomer. The merchant is compelled to
offer his services as a clerk. The master mechanic becomes a journeyman. If a clerk is thrown out of employment, the shoemaker has one good customer less. If
twenty clerks are deprived of employment, the shoemaker
may find it necessary to dismiss one of his assistants.
If twenty shoemakers are without employment, the baker
rnay find his sales of bread materially diminished: and so
of all other trades.
If the real wants of the community, and not their ability tp pay, be considered, it will not, perhaps, be found
that anyone useful trade or profession has too marry mem*" This is not the first time this remark has been made. In the British Bullion Report, made in 1811, the following passage occurs: "The
wages of common country labor, the rate of which, it is well known,
adapts itself more slowly to the changes which happen in the value oC
money, than the price of any other species of labor or commodity."
Hutchison, in his History of Massachu~etts, vol. 2, page 401, makes
a remark which shows that the effect of paper money is, in this respect,
the same, whether it is issued by a Government or by a Bank.
H I recollect one advantage from paper money.
Upon the depreciation from time to time, the wages of seamen, and the rate at whicb
coasting vessels and otheIS were hired, did not Immediately rise in
proportion to the rise of silver, and exchange with London and other
parts of the world."
29
bers.
29
SO
at
82
33
34
EFFECTS ON CREDIT.
CHAPTER VI.
Effects on Credit.
I n a rising country, sound credit is of equal importance
with sound currency. Through its operation, the advantages of capital are more equally diffused than would otherwise be possible. The man who has more capital than he
wishes to employ in his own business, and the aged and
infirm who possess wealth, lend it to the young and active.
By these means, much capital is made productive, which
must otherwise have remained unproductive; and many
persons find employment who must otherwise have been
idle. The wealth of the nation is increased, and lenders
and borrowers are mutually benefitted. The former receive their just share of profits, in the shape of interest;
and the latter keep another share as a recompense for the
trouble of management.
To have a system of sound credit, nothing more is necessary than to have a sound money system, and to enforce
the faithful performance of honest contracts.
Tn the countries forming the present United States, credit
has never been perfectly sound. In an early period of our
colonial history, arbitrary alterations were made in the legal
valuation of the current coin.
Then came the paper
money of the Provincial Governments, and the Continental money of the Revolutionary Congress, together with
tender laws, supported by penal enactments.
Men of
property were careful in making loans, as they knew not
but that, between the time of lending and receiving back,
such alterations might be made in the currency, that they
would be paid in money of much less value than that which
they lent.
Notwithstanding this, as business was much less uncertain than it is now, men whose moral character was such
as to afford a guarantee that they would not take advantage
of unjust laws to injure their creditors, found little difficulty in borrowing. But moral character is no longer
security for the re-payment' of loans; for, the sudd~n vicissitudes of fortune, which are produced by the Banking system, make very great changes in the moral feelings of men.
ErJ'ECTS ON CREDIT.
35
~rFECTS
ON CREDIt.
EFFECTS ON CREDIT.
37
CHAPTER VII.
38
EFFECTS ON CREDIT.
EFFECTS ON CREDIT.
39
40
EFFECTS ON CREDIT.
OF BANKS AS CORPORATIONS.
41
CHA.PTER IX.
Of Banks as Corporations.
Against corporations of every kind, the objection may
be brought, that whatever power is given to them, is so
much taken from either the Government or the people.
As the object of charters is to give to members of companies powers which they would not possess in their individual capacity, the very existence of monied corporations
is incompatible with equality of rights.
Corporations are unfavorable to the progress of national
wealth. As the Argus eyesofprivate interest do not watch
over their concerns, their affairs are much more carelessly
and much more expensively conducted than those of individuals. What would be the condition of the merchant
who should trust every thing to his clerks, or of the farmer
who should trust every thing to his laborers 1 Corporations
are obliged to trust every thing to stipendiaries, who are
oftentimes less trustworthy than the clerks of the merchant
or the laborers of the farmer.
Such are the inherent defects of corporations, that they
never can succeed, except when the laws or circumstances
give them a monopoly, or advantages partaking of the nature of a monopoly.
Sometimes they are protected by
direct inhibitions to indiviouals to engage in the same
business. Sometimes they are protected by an exemption
from liabilities to which individuals are subjected. Sometimes the extent of their capital or of their credit, gives
them a control of the market. They cannot, even then,
work as cheap as the individual trader, but they can afford
to throwaway enough money in the contest, to ruin the individual trader, and then they have the market to themselves.
If a poor man suffers aggression from a rich man, the
disproportion of power is such, that it may be difficult for
him to obtain tedress; but if a man is aggrieved by a corporation, he may have all its stockholders, all its clerks,
and all its proteges for parties against him. Corporations
are so powerful, as frequently t.o bid defiance to Government.
If a man is unjust, or an extortioner, society is, sooner
42
OF BANKS AS CORPORATIONS.
or later, relieved from the burden, by his death. But corporations never die.
What is worst of all, (if worse than what has already been
stated be possible,) is that want of moral feeling and responsibility which characterizes corporations. A celebrated
English writer expressed the truth, with some roughness,
but with great force, when he declared that "corporations
ha\'e neither bollies to be kicked, nor souls to be damned."
All these objections apply to our American Banks.
They are protected, in most of the States, by direct inhibitions on individuals engaging in the same business.
They are exempted from liabilities to which individuals
are subjected. If a poor man cannot pay his debts, his bed
is, in some of the States, taken from under him. I f that
wIll not satisfy his credltors, his body is imprisoned. The
shareholders in a Bank are entitled to all the gain they
can make by Banking operations; but if the undertaking
chances to be uI:successful, the ]oss falls on those who have
trusted them. They are responsible only for the amount
of stock they may have subscribed.
For the old standard of value, they substitute the new
standard of Bank credit. Would Government be willing
to trust to corporations the fixing of our standards and
measures of length, weight, and capacity7 Or are our
standards and measures of value of less importance than
our standards and measures of other things 1
'They coin money out of paper. What has always been
considered one of the most important prerogatives of Government, has been surrendered to the Banks.
In addition to their own funds, they have the whole of
the spare cash of the community to work upon.
The oredit of every business man depends on their nod.
They have it in their power to ruin any merchant to whom
they may become inimical.
We have laws against usury: but if it was the intention of
the Legislature to encourage usurious dealings, what more
efficient means could be devised than that of establishing
incorporated paper money Banks 1
Government extends the credit of these institutions, by
receiving their paper as an equivalent for specie, and exerts its whole power to protect and cherish them. WhOe
ever infringes any of the chartered privileges of the Banks,
is visited with the severest penalties.
OF BANKS AS CORPORATIONS.
43
44
OF BANKS AS CORPORATIONS.
POPULAR ARGUMENT&
45
CHAPTER X.
4G
POPULAR ARGUMENTS.
POPULAR ARGUMENTS.
47
48
POPULAR ARGUMENTS.
POPULAR ARGUMENTS.
49
50
CHAPTER XL
51
tal" and all their "credit." They would soon find gufficient reasons for "renewing" the business notes of some
of their customers, and those notes, thus renewed, would
become accommodation notes.
Except in the cases of applications from Directors, and
their fa vorites, the Banks now prefer business notes, because
these place their issues more immediately under their control. More than a certain amount they cannot lend on
accommodation paper, for they must keep so much capital
under command as is neces:'--lry to support their credit.
Their deposits would otherwise be withdrawn, and the circulation of their notes would cease. It does not appear
that these accommodation notes have any specially nlischievous effect on prices. 1'hey are permanent in amount,
or nearly so. The fluctuation ofprices appears to be occasioned by that part of Bank "capital" and of Bank
"credit," which is always varying in amount.
Limiting the amount of issues to double the amount of
capital, and the amount of loans to thrice the amount of
capital, is a favorite provision with legislators. But, Mr.
Gallatin says, "amongst more than three hundred Banks,
either now existing, or which have failed, and of which we
have returns, we have not found a single one, the loans of
which amounted, so long as specie payments were in force:
to three times, or the issues to twice, the amount ofcapital.
It is clear, that provisions applicable to such improbable
contingences, are purely nominal."
Compelling the Banks to give an annual statement of
their affairs, is also a favorite measure. But it is not easy
to compel them to give afaithful statement. The accounts
of the Banks that break look nearly as weIl on paper as
the accounts of the Banks that continue payments. They
who are acquainted with the secrets of Bank management,
say, little reliance is to be placed on these accounts.
Preventing the Banks from issuing notes of a less denomination than five doIlars, is a nleasure which is effective
so far as it goes. But it still leaves the Banks the power
to substitute paper for specie, and to carryon credit dealings to an extent which is very pernicious. In England,
where the issue of notes of a less denomination than one
pound sterling, or about four dollars and eighty cents, has,
for many years, been prohibited, the contractions and ex-
52
53
CHAPTER XII.
54
lars of different Banks represent at the same time, thirtythree aJ)d a third cents, twelve and a half cents, ten cents,
and seven cents of the silver dollar.
Yet they are all
current, and all have the same effective power as silver in
exchanges.
Various other erroneous views are entertained of the nature of Bank notes, the consideration of which would be
tedious. Examining them one by one, would be merely
showing what Bank notes are not. Instead of doing this, it
will, it is presumed, be sufficient to show what Bank notes
really are.
Bank notes are simple evidences of debt due by the Banks.
This is their true character.
As mere evidences of debt, they differ not from the promissory notes of merchants. They are also, in common
with bills of exchange and business notes, a commercial
medium; but in some respects, there is an essential difference between Bank notes and the notes of luerchants.*
For their promissory notes, the merchants pay interest.
For the promissory notes of the Banks, the Banks receive
interest.
The promises to pay of the merchants are fulfilled, when
the notes arrive at maturity. Bank notes are never paid.t
Payment of them in the aggregate is never demanded~
"A bill of exchange drawn by an individual or individuals who
do not issue notes having the character of currency, appears to us to
be clearly distinguishtld from a Bank note, though it is a substitute, and
lessens the amount of currency which would otherwise be required.
A payment made in Bank notes is a discharge of the debt, the creditor
having no further recourse against the person from whom he has received it, unless the Bank had pleviuusly failed. The bill of exchange
does not discharge the debt, the person who receives it having recourse
against the drawer and every preceding endorser, in CH.se the drawer
should fail or refuse to pay. But the essential di8tinction is, that bills
of exchange are only promises to pay in currency: and that the failures
of the drawers, drawees, and endorsers, does not in the smallest degree,
affect the value of the currency itself: or impair that permanent standard of value by which the performance of all contracts is regulated."
(;allatin.
55
56
name as a silver dollar, and then fancy there is no essential difference between them.
In our mensuration of other things which admit of increase or decrease by homogeneous degrees, we use instruments possessing the same physical properties as the
thing to be measured. The judgment the mind forms of
weight or length, is regulated by a material standard. The
judgment the mind forms of value, is regulated by an ideal
standard; for Bank credit is something altogether intangible.
In solid money countries, in all sales of goods for cash,
the products of labor are exchanged for the products of
labor. The product of the miner's labor, is made the instrument for circulating the products of the farmer's and
of the manufacturer's labor. The transactions are removed but one step from simple barter, and do not differ from
it in its essential principle. The exchanges on both sides
are of articles possessing inherent value-articles in the
production of which labor has been bestowed, and articles
which possess the physical qualities which adapt them to
the satisfaction of human wants and desires. We receive
commodities from one another, and give in return some
uncertain representatives of credit, and fancy that trade is
conducted with us on the same principles as it is in those
countries where paper money is unknown. We pass from
hand to hand certain promises to pay, and call that making payment.
The relations in the supply and demand of the precious
metals are so slow in changing, that hardly any perceptible variation in the value of silver has, according to some
able authors, taken place in the last two centuries. But
the suppl y of Bank notes may vary several per cent. in different periods of the same year, and twenty or thirty per
cent. in three or four years. Thence come great rises and
falls ot price: but we have only an imperfect apprehension
of the cause, for our intangible standard of value never
changes its name, how great soever may be the extent in
which it is contracted or expanded.
It is folly to say that the money of the country is not
paper money. In Virginia, Pennsylvania, and Maryland,
payments of a less amount than five dollars are made in
real money: bu t in the other States, dollar notes circulate,
57
58
CHAPTER XIII.
59
60
the best conducted Banks unable to comply with their engagements, though they may have in store double the
amount of specie, which would, in other times, be necessary to support their credit.
On a certain day in 1819, there were but $80,000 between us and universal bankruptcy. 1.'his was the whole
amount of specie in the United States Bank at Philadelphia; and if that had been exhausted, a shock would have
been given to Bank credit, which would have caused a
general suspension of specie payments. In 1825, the condition of both England and the United States was hardly
less critical: The failure of two or three of our principal
Banks would cause a run upon all the others. They could
then comply with but a part of their engagements, and
their inability to satisfy the claims of the holders of their
notes and of depositors, would render the fulfilment of
other money contracts impossible. 'rhe credit which
Bank notes enjoy, has been called "suspicion lulled to
sleep." Events may awaken that suspicion.
Attempts are sometimes made to show the perfect security of the Banks, by contrasting the amount due by them
for notes in circulation and for deposites, with the amount
falling d.ue to them every sixty or ninety days on account
of mercantile paper discounted by them. But such calculations, even when they rest on indisputable data, prove
only the ultimllte solvency of a Bank. The amount due
by the Bank, on account of deposites and on account of
notes in circulation, may all be legally demanded in one
day; nay, in one hour. A greater amount may be owing
to the Bank, but it is payable at different times, and the
extremes of the term are sixty or ninety days apart. The
individuals who owe this money to the Bank may be rich
men: but their ability to pay, within the time agreed upon,
depends on the credit of Bank paper being maintained.
Let the depositors suddenly withdraw but one-half the
amount of specie ordinarily retained by the Banks, and
the credit of Bank note~ necessarily falls. A portion of
the debts due to the Banks may be paid in this depreciated
paper; but the Banks will not have the means of satisfying all their creditors. There being little specie in the
country, the collection of debts due by individuals to indi.
61
viduals, would be suspended, (if Bank paper should suddenly lose its credit.)
..
..
..
..
..
..
The danger of such an event may not be very imminent; but it is sufficient to show that the stability of Bank
medium depends on contingencies which, as they cannot
always be foreseen, cannot always be guarded against.
What was called "a panic" in England, in 1825, broke
up a number of private Bankers who were perfectly sol.
vent, and was near proving destructive to the whole sye.
tern. If a suspension of specie payments should again
occur in this country, we should be left for a time without
a sufficient medium of exchanges. Too many men are
now aware of the nature of " inconvertible" Bank paper
for it to have general circulation. It would soon run the
course of the Continental money, and of the French assignats.
So long as Bank paper is Cl convertible," more than a
certain amount cannot be kept in circulation for a long
time without undergoing a sensible depreciation. Hence
U convertibility"
fixes a limit which Bank issues cannot
pass. By carefully watching one another, by attending to
the course of foreign exchanges, and by guarding against a
drain of specie, the Banks may, in ordinary times, maintain the" convertibility" of their paper; but the history of
Banking, both in England and the United States, since the
resumption of specie payments, shows that this "conver-
tibility" cannot give to Bank medium that stability which
is essential to a sound money system.
In the means by which "convertibility" is maintained,
we have an abundant source of evils. It is by.one Bank
pressing on another, and thereby forcing the debtor Bank
to press on its customers. When there is a foreign demand for specie, the" convertibility" of Bank medium is
Inaintained by a general pressure on the community.
Lord Liverpool, in a debate ill the British House of
Peers. in Feb. 1826, placed the doctrine of convertibility
in its true light. "The doctrine," he said, " maintained
by some noble lords, that nothing was better than a paper
circulation convertible into gold, is true to this extentthat if convertible into coin, the evil would cure itself,
whilst one not convertible would lead to nothing but ruin.
But how is the cure to be operated 1 By the downHill of
62
CHAPTER XIV.
Of the" Elasticity"
of Bank
Medium.
63
64
CHAPTER XV.
(;5
66
67
out of order, which requires frequent and expensive repairs, and which, after all, performs its work badly.
Men have passed from one extreme to the other. A hundred years ago, the chief feature in the commercial policy
of nations, was the amassing of gold and silver, as a kind
of wealth par excellence. Now, he is the wisest statesman,
who is most successful in driving the precious metals from
a country.
In their attempts "to economize specie," as they caIl
their absurd and nefarious policy, they seem to be forgetful
of economy in every thing else.
Correct measures of
value, it must be confessed, cost something. So, likewise,
do correct measures of weight and of capacity. A metallic
medium cannot be obtained without paying for it; but
whatever it may cost, it is well worth its cost. Our roads
and our canals, which are, like money, instruments for facilitating exchanges, cost immense sums. So, also, do our
~hips, and our manufacturing machinery.
Among labor saving machines, gold and silver coin are
entitled to the first place. In no way can a nation invest
a portion of its capital more profitably, than in a sound circulating m.edium. It will return its original cost a hundred fold. Without such a medium, it is impossible for
contracts to be complied with in equity, or for productive
rndustry to exert all its energies.
CHAPTER XVI.
68
69
70
CHAPTER XVII.
71
72
73
CHAPTER XVIII.
7-1
than six per cent. When the proposal was made to form
a "safety fund," by a tax on the Banks, the proprietors of
stock in the city B~nks of New York objected to it as a
great hardship, alleging that they had not, for a series of
years, received more than 5-k per cent. per annum. The
heavy expenses of these institutions in the payment of Presidents, Cashiers, and Clerks, and the heavy losses that are
necessarily sustained when corporate interest superintends
the business of lending, are the reasons that the stockholders get much less than the people pay. Such being
the fact, the anxiety to establish new Banks might create
surprise, if we did not know that the object of the projectors of such institutions is not to lend money, but to make
money. People who have money, can lend it without the
intervention of Boards of Directors. They can lend it
more securely, and watch over it more easily. But a new
Bank will afford to some favored gentleman a snug birth
as President for life, and to another an equally snug birth
as Cashier. Poor cousins can be very conveniently provided for by giving them clerkships. To some, the new
Bank will afford facilities for borrowing; to others, it will
afford facilities for lending-at two or three per cent. a
month. To those who are to be Directors, it will impart
additional consequence in society, and give great ad vantages over their neighbors in business. Others hope to make
fortunes by speculations in the script. To further all these
objects, nothing is necessary but a charter from the Legislature, and the means of paying the first instalment. By
the convenient contrivance of stock notes, the stock of the
Bank can be completed. The circulation and deposits
will prove a certain source of revenue.
When a charter is granted, the speculators evince great
anxiety to possess the stock, and thereby create an idea
that it is something very valuable. In New York, their
practice is to subscrib~ a much greater amount than the
nominal capital, and then clamor for a pro rata division.
In the case of the Broome County Bank, the capital of
which was fixed at 100,000 dollars, the subscriptions
amounted to eight millions. In Pennsylvania, where subscriptions are not received beyond the amount of nominal
capital, draymen and other able-bodied persons are hired
by the speculators to get the script for them. They strug-
75
76
sory notes. This ability depends on various contingencies, all which ought to be duly considered by those who
contemplate making permanent investments of the funds
in their hands.
In making temporary investments, there is less risk.
" The house is crazy," says the weary traveller to himself,
"and must fall; but not to-night. I may therefore venture to sleep in it." When it has no profits, the Bank may
make dividends on its capital, and the fact be concealed
from all but the Directors. If its stock should fall in the
market, it may be raised again by a few pretended sales,
effected through the instrumentality of brokers.
Sometimes the funds of a Bank are employed in purchasing its stock, and then, if the price offered be sufficiently high, those who have the management contrive to
sell their own shares. In 1826, four thousand eight hundred and eighty-three shares of the Franklin Bank of New
York, were bought up with the funds of the Bank, at an
advance of 62,850 dollars. When an investigation was
made of the affairs of the Bank, in 1828, it was found
there was not enough left to pay the remaining stockholders 50 cents in a dollar.
When a Bank gets into difficulties, it sometimes su.stains
itself for a period, and affords its agents a considerable
chance of profit, by allowing them to have its notes at a
discount, on condition of their putting them in circulation
in distant places. On an investigation of the affairs of the
State Bank at Trenton, in 1825, it was proved that one of
its agents had sold bills of the Bank to the amount of
18,500 dollars, at an average discount of 37i per cent.
The very day before the Bank stopped payment, its notes
were quoted in the Philadelphia Price Current, at only Ii
per cent. discount.
- Every now and then the speculators. find it convenient
to break a Bank. This enables them to purchase up the
notes at a discount, and therewith pay what they owe to
the Bank. "'.rhere are instances," says Mr. Gallatin, "in
which the stockholders, by paying for their shares in their
own notes, and afterwards redeeming their notes with the
stock in their name, suffered no loss; and thi~ fell exclusively on the holders of Bank notes and depositors."
In the New York American, for Juue 1825, the follow.
77
78
CHAPTER XIX.
Of the Ways and Means by which Bank Charters are. obtained and renewed.
When a bill was under consideration in the year 1828, to
renew the charter of the New York State Bank, General
Root, then speaker of the Senate of that Commonwealth,
made a speech, from which the following is an ext-ract:
"This Bank was chartered in 1803. Who were the
original applicants, and what were the representations made
to the country members, it is not necessary to state: at all
events, it was to be a State Bank, and a democratic one.
79
80
technically as "logrolling." The figure of speech is borrowed from the practice of the original settlers, who, after
cutting down the trees on their tracts of land, used to as
semble together to roll the logs into heaps. What could
not be done by one man, the united strength of many made
easy. In like manner, the members of the Legislature who
are interested in local: personal, or corporation bills, unite
their strength, and roll them all through both houses. In
this way; it may chance that fifty or a hundred bills are
passed in the course of a session, each of which, if suffered to rest on its own merit, would have been rejected.
Many members of the Legislature are averse to this
practice; but some of them are reluctantly brought into it,
by the refusal of the "Iog.rolling" members to vote for
good public bills, unless their own private bills are passed
at the same time.
The same system is known in the other States, by other
names; and it will readily be believed, that where it prevails, special privileges will be conferred on companies under any and every pretext. Such is the effect it has on
American Legislation, that a stranger, on inspecting the
list of acts annually passed, might suppose our State Governments had bee.n established for the special benefit of
stock-jobbers and speculators. In 1826, the Governor of
Massachusetts declared that, within the preceding five
years, charters had been granted to corporations within
that Commonwealth, with authority to hold thirty millions
of property. 'rhis was exclusive of charters to Banking,
Insurance, Canal and Rail Road Companies. The Governor of Delaware stated, in his official rnessage in fS25,
that there were then eighty corporations in that small State.
No doubt many legislators think that, in voting for new
Banks, they are promoting the welfare of their constituents. But the prevalence of false views of the money corporation system, in legislative bodies, is to be attributed
mainly to the exertions of those members who have a personal or political interest in establishing and supporting
such institutions.
If a Bank only preserves a tolerable credit, the 'renewal
of its charter follows as a matter of course. At least, we
have met with no instance on record, of refusal to renew
the charter of a State Bank which had not committed some
open act of bankruptcy. How far a Bank may be entitled
81
82
83
84
CHAPTER XX.
85
86
87
$19,200
On this supposition, 200,000 of metallic money will be
left in the county, half of which may be in the vaults of
the Bank, and the other half circulate as the medium of
retail trade.
In ou! haste we passed over the payment of the second,
third, and subsequent instalments of the stock. It was
not of much moment. The payments were merely nominal. The speculators could easily have paid all the instalments, after the first, by the profits derived from the operations of the Bank itself. But where would have been the
use of this 1 'fhe money, if paid in, would have been lent
and exported.
It would have added something to the
income of the Bank. But each speculator can make
as much by keeping it in his own hands. The original
sum of 5,000 dollars, and so much of the silver of depositors as is retained, are sufficient to support the credit of
the Bank. Each of the speculators, therefore, throws in
a note for 500 dollars, when the second instalment becomes
<.lue. The Bank discounts it: pays out its own paper at
one counter, and receive~ it hack at another, or, perhaps,
only makes a new credit entry in its books. It is true, that the
speculators are made debtors to the Bank for a certain
amount as borrowers: but they are credited with an equal
amount as stockholders: and in this way the whole of the
remaining instalments may be arranged. By this contrivance
the sum of 95,000 dollars will be added to the debts due
to the Bank, but nothing to its circulation or responsibilities.
The time has now come, in which the speculators may
sell a part or the whole of the stock. They may with safety
dispose of seven hundred and fifty shares, to widows, orphans. and literary and charitable institutions, for these
will never interfere with Bank management.
We will deduct 9,200 dollars from the gross income of
88
the Bank, for expenses, losses, and reservations for a contingent fund. It will then be able to divide ten per cent.
on its nominal capital: and at the rate at which permanent annuities are calculated, stock yielding ten per cent.
will be estimated as worth in the market 150 dollars a
share. Each of our speculators sells seventy-five shares
of his stock at this rate, or for 11,255 dollars, and invests
the proceeds ill land, houses, or merchandise. The risk
of payment to the Bank of the notes discounted, he transfers to the purchaser of the stock.
Thus we see that our ten speculators have, by the "judicious" use of 5,000 dollars of metalic money, got transferred to them 112,550 dollars' worth of real and personal
estate. Retaining two hundred and fifty shares of stock,
they keep the control of the institution in their own hands.
Now, we pretend not to say that the accounts of anyone
of our American Banks would, if faithfully exhibited, accord
in every particular with this supposed case. Their profits do
not appear to be usually as great: but extreme cases
serve best to illustrate principles; and these are the fundamental principles of the American Banking System. A
small ~mount of metalic money is paid in: the other instalments are arranged by the discounting of stock notes.
The Bank extends its operations by discounts on deposits,
and by substituting a paper for a metalic medium: and, at
a suitable time, the founders of the Bank sell a portion of
the stock, and invest the proceeds in lands, houses, and
merchandise.
The Bank of Ch~ster had, on the 3d of November, 1829,
a capital of 90,000 dollars, notes in circulation to the
an10unt of 209,064 dollars, and deposits to the amount of
166,374 dollars. The specie in its vaults amounted to
61,462 donars, and the investments on which it was drawing interest amounted-apparently to 45] ,663 dollars. The
circulation and deposits of the Bank of Chester, were alto..
gether 375,438. Those of the Bank in the case supposed,
for the sake of illustrating the principle, were only 300,
000 dollars. The in vestments of the Bank of Chester,
'yielding interest, amounted to 451,663. Those of the
supposed Bank, to only 395,000~ including the stock notes
of the ten founders of the Bank.
It may be, that the whl)le 90,000 of the capital of the
89
Bank of Chester was paid in, without any resort to discounting of stock notes, or any similar contrivances. But
if it was, there was nothing in the principles of the system
to prevent the stock of the Bank of Chee,ter from being
filled up in the way which is usual in establishing new
Banks in America. The Bank of Chester County having gone into operation in the year in which specie payments were suspended, the filling up of its stock must haye
been an easy process, whatever method was adopted.
As it is public credit that supports the Banks, and not
the Banks that support l:ublic credit-as the deposits of
the Banks are the property of the community generally,
and as the profits derived from circulation come front' the
community generally, they ought to go to the community
generally, and be used (if used at all) to lighten the burdens of taxation. "If," says Ricardo, "a charter were
about to expire, the public might question the policy of
permitting a company to enjoy all the advantages which
attend the supplying of a great country with paper money.
Paper money may be considered as affording a seignorage
equal to its whole exchangeable value-but seignorage in
all countries belongs to the State."
If, after the manner of the Scotch Banks, the American
Banks paid four per cent. interest on deposits, and granted
discounts at the rate of five per cent. there would be something like equity in this department of their operations,
for one per cent. would not be more than a fair commission.
But they allow no interest on deposits, except in Boston,
and perhaps in Baltimore, though it is, in point of fact,
through the means of the deposits, that they support the
credit of the notes they have in circulation.
But the reader will have a very imperfect idea of the advantages the present Banking 3yslem gives to some men, if
he extends his view no further than the profits derived from
trading on deposits, from substit.uting a credit medium of
cotnmerce for a metallic medium, from the formation of Bank
stock secundum artem, and the subsequent exchange of
that Bank stock for lands, hou&es and merchandise.
In addition to this, he must take into considerationWhat some have gained and others have lost, by the various kinds of stock-jobbing and usury, to which Banking
has gi ven rise:
90
CHAPTER XXI.
91
92
Inasmuch as personal, political, commercial, and accidental causes, operate sometimes in conjunction, and sometimes in opposition, it is diffiult to say, in individual cases,
in how great degree wealth or poverty is owing to one
cause or to another. Harsh judgments of rich and poor,
taking them individually, are to be avoided. But it is notorious, that, as regards different classes in different countries, wealth and poverty are the consequences of the positive institutions of those countries. Peculiar political priviliges are commonly the ground of the distinction: but
peculiar commercial privileges have the same effect: and
when the foundation of the artificial inequality of fortune is
once hid, (it matters not whether it be by feudal institutions or money corporations,) all the subsequent operations
of society tend to increase the ,difference in the condition
of different classes of the community.
One consequence of unequal institutions is increasing the
demand for luxuries, and diminishing the effective demand
for necessaries and comforts. Many being qualified to be
producers of necessaries, and few to be producers of luxuries, the reward of the many is reduced, and that of the
few raised to an enormous height. The inventor of some
new means of gratification for the rich, is sure to receive
his recompense, though thousands of able-bodied men may
be starving around him.
This may be illustrated by a case drawn from England,
where the favorite opera-singer receives her thousands per
annum, while th~ able-bodied agriculturalla borer is forced
'<> draw on the parish rates for subsistence.
Something similar to it may be found in our own country,
where the second rate singers, dancers, and players of Eu.
rope, accumulate fortunes in a few years, while multitudes
of humble but useful women in all our large cities, struggle hard for the means of a bare su bsistence.
Now, there is no cause of complaint in people's lavishing
their thousands on favorite singers and dancers, if these
thousands have been honestly earned and fairly got. But
if they owe their thousands to political or commercial institutions operating specially to their advantage, those political and commercial institutions are not of the kind most
conducive to social happiness.
Through all the operations of business, the effects of an
93
94
CHAPTER XXII.
95
96
EFFECTS ON HAPPINESS.
97
CHAPTER XXIII.
Effects on Happiness.
The inferences the intelligent reader must have drawn
from what has already been stated, preclude the necessity
of much detail in this part of our inquiry.
Wealth is, if independently considered, but one among
fifty of the causes of happiness: and poverty J viewed in
98
EFFECTS ON HAPPINESS.
the same light, is but one among fifty of the causes of misery. 'rhe poorest young man, having health of body and
peace of mind, and enjoying the play of the social sympathies, in the affections of wife, children and friends, i~ happier than the richest old mau, bowed down with sickness,
oppressed with anxiety for the future, or by remorse for the
past, having nobody to love, and beloved by nobody.
But though we may, by mental abstraction, consider
wealth independently, or poverty independently, neither
the oue or the other is absolutely independent in its operation. There is no cause in either the physical or the moral
world, but which works in cOl'ljunction with other causes.
Health of body and peace of mind, with the just play of the
social affections, may give happiness, independently of
\vealth: but in extreme poverty, it is difficult to preserve
either health of body or peace of mind, and the play of the
social affections becomes then a source of misery.
Some little wealth, at least enough for daily subsistence,
is necessary for the enjoyment of life and the pursuit of
happiness: and hence it is, that the right to property is as
important as the right to life and the right to liberty. "You
t.ake my life when you do take the means by which I
live."
The majority of men are of such temperament, that
something more than the means of subsistence for the bare
twenty-four hours, is necessary for tneir happiness. They
must also ha ve a prospect of enjoying the like means of subsistence in future days. But this is a prospect which, with
the reflecting part of the poor, is frequently overcast with
clouds and gloom. Few journeymen mechanics are able
to make adequate provision for sickness and old age. The
wages of a laborer will support him and his family while
he enjoys health and while employment is steady: but in
case of long continued sickness he must look for relief frOlU
the hand of public or of private charity. If he casts his eyes
on his wife and children, his dying hours are imbittered
with thoughts of the misery which may be their portion.
Corroding care is the inmate of the poor man's breast. It
is so heart-withering, that it may be made a question, if the
condition of some slaves in the Southern States is much
\vorse than that of many citizens of the other States. The
want of liberty is a great drawback on happiness: but the
EFFECTS ON
I1APPINES~.
99
100
EFFECTS ON HAPPINESS.
101
on this head of the subject. We allude to the misery suffered by an honest man, who is involved in debts. We
have known cases in which none of the common rules of
prudence had been transgressed in incurring the debts, in
which the creditors were perfectly convinced of the
honesty of the debtor, and neither pressed for payment,
nor reflected on his disability to comply with his engagements: in which the debtor was sensible that his failure
would not subject his creditors to any serious inconvenience; and yet a gloom would overspread the mind of the
debtor, and remain there for years.
CHAPTER XXIV.
102
103
CHAPTER XXV.
104
105
convinced in another way. Our exports of domestic produce amount annually to bet\\'een fifty and sixty millions
of dollars. If we should buy from five to ten millIons a
year of gold and silver, for ten years, we should still have
between forty and fifty millions to expend in the purchase
of European manufactures, and East and West India products. If, by the withdrawal of paper, a demand for specie
to the amount of twenty millions annually should be created, it could readily be supplied. England, in four years,
on the resumption of specie payments, imported twenty
millions sterling In gold alone. Our demand could be
supplied by both gold and silver.
Supposing the withdrawal of the Bank notes should
cause a diminution of Bank discounts of equal amount,
the effect, if we proceeded gradually, would be almost imperceptible. If two years were allowed for the withdrawal
of small notes, the diminution of Bank discounts would, in
this period, and on this supposition, be at the rate Qf
3,500,000 dollars a year. In the single city of Philadelphia, there have been, in periods of less than a year, reductions of Bank discounts to as great an amount as is here
proposed for the whole country.
According to the estimate of 1\lr. Gallatin, the whole
amount of Bank notes in actual circulation, in 1830, was
about 54,000,000.
Surely it will not be said, that our
whole nation cannot payoff an amount of Bank debt, equal
to the amount of Bank notes in circulation, in the period
of ten years.
But, supposing we should, in the course of ten yeard,
choose to payoff an amount of Bank debt, equal to the
whole amount of Bank medium, or of both Bank notes and
Bank credits, amounting together to 109,000,000, would it
be a work of insuperable difficulty? In the last seven
years, the Government has paid off the public debt at the
rate of eight or ten millions a year: can we not, all of us
together, payoff between eleven and twelve millions a year
of Bank debt?
In a pamphlet entitled "Remarks on the Annual Treasury Report," published in 1828, and said to be written by
two practical economists, distinguished for their talents
and information, the whole capital of the country is estimated at 12,000,000,000 dollars, and its productive industry
106
at 600,000,000 annually. Mr. Lee ofBo~ton, seems to suppose the national capital is not more than 10,000,000,000,
but he increases the national income to 700, or 800 millions. In the Harrisburgh address, drawn up by l\'Ir. Niles,
in 1828, our productive industry is estimated at 1,066,000,000. l"Ir. E. Everett, in his speech of 1830, 'rates our
national income at 1,000,000,000 dollars.
Take the lowest of these estimates; suppose our national capital to be only 10,000,000,000, and our productive
industry only 600,000,000 a year, can we not payoff a
Bank debt of 109,000,000 in ten years?
In every year, the increase of loanable capital in the
country, must exceed the amount of Bank debt it would be
necessary to pay. Private credit would take the place of
Bank credit. If there should be a greater demand for
capital on loan than could be supplied out of the savings
of our own people, capital would flow in abundantly from
Europe.
If the notes should be withdrawn gradually, in the manner here proposed, there is not a solvent Bank, nor a solvent individual, in the country, that could not sustain the
operation. Such are the energies and the resources of the
American people, that it would seem practicable to accomplish the work in half the time we have mentioned. Thpsooner it is accomplished, the sooner will we be delivered
from the evils of our present condition. If, however, ten
years be thought too short a time for the work of reform,
let it be extended through twenty years or through thirty
yean:;. The longest of these is but a short period in the
life time of a na,tion.
CHAPTER XXVI.
107
108
109
110
III
CHAPTER XXVI.
112
sury office need not exceed ten thousand dollars per annum.
If it were necessary occasionally to carry silver from one
part of the country to another, the Government could do it
as easily and cheaply as individuals. 'The whole amount
it would be necessary to transport, would not probably ex~
ceed four or five millions a year, nor the cost go beyond
one per cent. As the principal part of the United States'
revenue is collected in those sections of the eountry which
have usually the rate of exchange in their favor, what the
Government would gain by the sale of bills of exchange in
the West and South, on Boston, New York, Philadelphia,
and Baltimore, would probably exceed what it would be
forced to pay for the transportation of specie.
There is no novelty in this. It is the system of all policed nations except our own. In England, the Bank is
merely auxiliary to the Exchequer and the Treasury. The
revenue collected at Liverpool, is, or was a few years since,
remitted to London through the agency of a private
Banker.
To incorporate a Bank with a capital of ten millions or
of thirty-five miIIions, to endow that corporation with privileges which individuals do not possess, and to Inake its
pap~r receivable in payment of dues to Government, is a
lueasure so wide from the proposed end, that it cannot be
considered " as necessary and proper," or, if the phrase be
preferred, "as natural and appropriate." It is difficult to
believe that it would have been even so much as thougllt oj,
if the measure had 'not in itself been calculated to promote
certain private interests. The natural and appropriate way
of keeping the public funds, is in the Treasury and in
sup-treasury offices. The natural and appropriate way
of transferring them from point to point, is by bills of exchange, and the occasional transportation of specie.
Neither is the establishment of a United States papermoney incorporated Bank, the" necessary and proper,"
or "natural and appropriate" way of correcting the evils
occasioned by the State Banks. A National Bank, resting
on the same principles as the State Banks, must produce
similar evils. It must " contract" and" expand" as well
as they.
If Congress should, from excessive caution, or some less
113
114
115
Let Bank notes be withdrawn, and such an accumulation of gold and silver coin will be made by individuals,
that in no possible exigency will there be a real scarcity of
money. This is evident from the condition of certain
countries in which paper money is unknown. In Flanders,
for example, every farmer has a little purse of gold or silver-small in proportion to his property, hut making the
aggregate throughout the country very considerable. Nothing is 105t by this practice. It is impossible to keep the
whole wealth of a country in constant circulation. If a
man's whole stock consists of but two suits of clothes, he
cannot wear them both at the same time. It is of little
moment, as regards individuals, whether their reserved
stock be in money or in those things which money can procure. In a national point of view nothing is lost by this
It ensures the punctual performance of concustom.
tracts. No man has to call twice on a farmer in FIan...
clers, for the paym-ent of a debt. 'Vhatever may be the vicissitudes of war or of commerce, there is never in that
country a scarcity of the tool of all trades.
We have that amount of metallic money in the United
States which is barely sufficient, in the most favorable
state of things, for daily exchanges, and which would not
answer even in the most favorable state of things, if we
had not various modes of barter, and different credit contrivances. As much time is lost every year, in " dunning
for debts," as would, if properly employed, purchase some
millions of metallic medium. Let the natural order of
things be restored, and a sufficiency of metallic money will
be collected, to enable the country to bear transitions from
peace to war, and to answer all the demands of commerce,
both ordinary and extraordinary. As it is the custom of
all prudent families in rural districts, to have on hand a
greater quantity of flour and other necessaries, than is
required for the use of the twenty-four hours, so it will become the custom for each prudent family to have a little
money in reserve. Out of this stock, the war taxes will be
paid, and before the original stock is completely exhausted,
a portion of it will come back to them in the regular course
of trade.
Few people are more able than those of the United
States to contribute what is necessary for the defence of
116
117
CHAPTER XXVIII.
118
II!)
120
121
122
123
CHAPTER XXIX.
124
the United States from advancing in wealth and population. Our national prosperity has its seat in natural causes
which cannot be effectualJ.y counteracted by any human
measures, excepting such as would convert the Government into a despotism like that of 'furkey, or reduce the
nation to a state of anarchy resembling that of some countries of South America.
Our wealth and population will increase till they become
equal for each square mile to the wealth and population of
the continent of Europe.
We are now very far from this limit. Under a good
system, we cannot reach it in less than one or two hundred years. Under a bad system, in not less, perhaps, than
three or four hundred.
If we had a political system as bad as that of Great Britain, with its hereditary aristocracy, its laws of entail and
primogeniture, its manufacturing guilds, its incorporated
commercial companies, its large standing army, its expensive navy, its church establishment, its boroughmongering,
its pensions and its sinecures, our advancement would be
seriously retarded. But our wealth and population would,
notwithstanding, continue to increase, till they should bear
the same ratio to the natural resources of the country, that
the wealth and population of Great Britain have to the
natural resources of that island.
The progress of opulence in the United States in the
next forty or fifty years, will probably be very great. Many
of the natural sources of wealth are as yet unappropriated.
In no part of the country has their productiveness been
fully developed. The people have now sufficient capital to
turn their land and labor to more profit than was possible
in any previous period of our country's history.
The daily improvements in productive machinerYJ and
especially in the application of steam power, the discoveries in science, the introduction of new composts and new
courses of crops in agriculture, the extension of roads ana
canals, have all a tendency to increase the wealth of the
country, till the aggregate shall be enormous,
But this increase of wealth will be principally for the
benefit of those to whom an increase of riches will bring
r:o increase of happiness, for they have already wealth
enough or more than enough. Their originally small capi-
125
126
127
128
public distress is almost sure to produce. Instead of tracing its cause to some positive institution, the removal of
which, though it might not immediately relieve distress,
would prevent its recurrence, men set themselves to heaping
law upon law, and institution upon institution. They in
this resemble quacks who apply lotions to the skin to cure
diseases of the blood, or of the digestive organs, occasioned
by intemperate living.
These projects of relief and efforts at corrective legislation, will be numberless in multitude and diversified in
character: but as they will not proceed on the principle of
" removing the cause that the effect may cease," they will
ultimately increase the evils they are intended to cure.
CHAPTER XXX.
129
130
Baltimore 1823.
131
kind will probably be numerous, for even those who apparently pay most regard to the principles of natural justice,
think themselves fairly entitled to such advantages as the
law gives them, and deem it quite proper to endeavor to
advance their private speculations by procuring legislative
enactments in their especial favor. If these attempts shall
be successfully resisted, we may rationally expect-being delivered from the curse of paper money and of moni~d corporations-a considerable improvement, in the following
particulars.
1. The dp.mand for most articles of commerce and manufactures wiIJ become regular, and the supply will conform
itself to the demand, the variations being seldom so sudden or so great as to prevent men of good common sense
from managing their business successfully. At present,
men find it difficult to make the operation of the natural
causes that affect supply and demand the basis of an estimate, in engaging in any enterprize, because these causes
are confounded with others growing out of the present system of business.
2. Bankruptcies will be as rare as they were before the
Revolution, and losses by bad debts will be inconsiderable.
l\lore or less uncertainty will always attend foreign commerce.
Events which may happen abroad may, from
time to time, have an injurious effect on bodies of merchants engaged in a trade with particular countries: but,
as is correctly observed by l\1r. Gallatin, the effects of commercial revulsions in a country having a metallic currency,
are generally confined to dealers, extending but indirectly
and feebly to the community, and never affecting the currency, the standard of value, or the contracts between persons not concerned in the failures.
3. The yalue of that which forms~ the principal item of
wealth in every country, the land and its improvements, is
affected slowly by natural causes. It seldom rises or falls,
except in particular situations, more than one or two per
cent. in the course of a year. Such variations would not
be great enough to prevent the majority of men from forming correct estimates of the value of real estate: and as
there would be a continuous rise in the value of land, with
the increase of wealth and population, sellers would be
quite secure in receiving one-fourth of the purchase money
132
133
134
SUMMARY.
135
CHAPTER XXXI.
Summary.
ffo place the subject fairly before the reader, we shall
bring together the principal propositions that have been
supported in this essay, and leave the decision to his can~
did judgment.
We have maintained:
1. That real money is that valuable by reference to which
the value of other articles is estimated, and by the instrumentality of which they are circulated. It is a commodity,
done up in a particular form to serve a particular use, and
does not differ essentially from other items of wealth.
2. That silver, owing to its different physical properties,
the universal and incessant demand for it, and the small
proportion the annual supply bears to the stock on hand,
is as good a practical standard of value as can reasonably
be desired. It has no variations except such as necessarily
arise from the nature of value.
3. That real money diffuses itself through different countries, and through different parts of a country, in proportion to the demands of commerce. No prohibitions can
prevent its departing from countries where wealth and
trade are declining; and no obstacle, except spurious money, can prevent its flowing into countries where wealth
and trade are increasing.
4. That money is the tool of all trades, and is, as such, one
of the most useful of productive instruments, and aIle of
the most valuable of labor saving machines.
5. That bills of exchange and promissory notes are a
mere commercial medium, and are, as auxiliaries of gold
silver money, very useful: but they differ from metallic
money in having no inherent value, and in being evidences
of debt. The expressions of value in bills of exchange and
promissory notes, are according to the article which law or
eustom has made the standard; and the failure to pay bills
of exchange and promissory notes, does not affect the
value of the currency, or the standard by which aU contracts are regulated.
6. That Bank notes are mere evidences of debt due by
136
SUMMARY.
the Banks, and in this respect differ not from the promissory notes of the merchants; but, being received in full of
all demands, they become to all intents and purposes the
money of the country.
7. That Banks owe their credit to their charters; for, if
these were taken away, not even their own stockholders
would trust them.
8. That the circulating quality of Bank notes is in part
owing to their being receivable in payment of dues to go\'ernment; in part to the interest which the debtors to
Banks and Bank stockholders have in keeping them in
circulation; and in part to the difficulty, when the system
is firmly established, of obtaining metallic money.
9. That so long as specie payments are maintained, there
is a limit on Bank issues; but this is not sufficient to prevent successive" expansions" and "contractions," which
produce ruinous fluctuations of prices; while the means
by which Bank medium is kept" convertible" inflict great
evils on the community.
10. rrhat no restriction which can be imposed on Banks,
and 110 discretion on the part of the Directors, can prevent
these fluctuations; for,Bank credit, as a branch of commercial credit, is affected by all the causes, natural and
political, that affect trade, or that affect the confidence man
has in man.
11. That the" flexibility" or " elasticity" of Bank medium is not an excellence, but a defect, and that" expansions" and" contractions" are not made to suit the wants
of the community, but from a simple regard to the profits
and safety of the Banks.
12. That the uncertainty of trade produced by these
succe3sive "expansions" and " contractions," is but one
of the evils of the present system. That the Banks cause
credit dealings to be carried tQ an extent that is highly
pernicious-that they cause credit to be given to men who
are not entitled to it, and deprive others of credit to whom
it would be useful.
13. That the granting of exclusive privileges to companies, or the exempting of companies from liablities to which
individuals are subject, is repugnant to the fundamental
principles of American Government; and that the Banks,
inasmuch as they have exclusive privileges and exemp-
SUMMARY.
137
138
SUMMARY.
tuents; but the prevalence of false views in legislative bodies in- respect to money corporations and paper money, is
to be attributed chiefly to the desire certain members have
to make money for themselves, or to afford their political
partisans and personal friends opportunities for speculation.
20. That the banking interest has a pernicious influence
on the periodical press, on public elections, and the general course of legislation. This interest is so powerful, that
the establishment of a system of sound currency and sound
credit is impracticable, except one or other of the political
parties into which the nation is divided, makes such an object its primary principle of action.
21. That through the various advantages which the
system of incorporated paper money Banking has given to
some men over others, the foundation has been laid of an
artificial inequality of wealth, which k.ind of inequality is,
when once laid, increased by all the subsequent operations
of society.
22. That this artificial inequality of wealth, adds nothing
to the substantial happiness of the rich, and detracts much
from the happiness of the rest of the community. That
its tendency is to corrupt one portion of society, and debase another.
23. That the sudden dissolution of the Banking system,
without suitable preparation, would put an end to the collection of debts, destroy private credit, break up many productive establiohments, throw most of the property of the industrious into the hands of speculators, and deprive laboring people of employment.
24. That the systenl can be got rid of, without difficulty, by prohibiting, after a certain day, the issue of small.
notes, and proceeding gradually to thoseof the' highest denomination.
25. That the feasibility of getting rid of the system, is
further proved by the fact, that the whole amount of Bank
notes and Bank credits, is, according to 1\lr. Gallatin's calculation, only about one hundred and nine million dollars.
By paying tenor eleven millions a year, the whole can be
liquidated in the tenD of ten years. If, however, twenty
or thirty years should be required for the operation, the
longest of these is but a short period in the life time of a
nation.
SUMMARY.
139
140
SUMMARY.
PART II.
SHORT HISTORY
OF
U NIT E D S TAT E S.
SHORT HIS'l'ORY
OF
CHAPTER I.
Of the Medium
In 1641, as we learn from the same authority, the General Court of Msssachusetts "made orders about payment
of debts, setting corn at the usual price, and making it
payable for all debts which should arise after a time prefixed." In 1643, the same General Court ordered" that
W ampompeag should pass current in the payment of debts
to the amount of forty shillings, the white at eight a penny,
the black at four a penny, except for county rates."
Warnpompeag being an article of traffic. with the Indians,
had a value in domestic trade, but an attempt to fix its
value by law was an absurdity, and making it a legal tender was something worse than absurdity. The measure
was, however, in perfect accordance with the orders given
by the General Court in 1633, declaring, "that artificers,
such as carpenters and masons, should not receive more
t.han two shillings a day, and proportionably, and that merchants should not ad vance more than four pence in the shilling above what their goods cost in England."
shillings and six pence tobacco. Cider and beer vinegar at two shillings, or three shillings in tobacco. Loaf sugar one shilling and eight
pence per pound, or two shIllings and six pence in tobacco; butter and
cheese eight pence per pound. o.r one shiUing in tobacco. Newfoundland fish per cwt. fifteen shillings, or one pound four shiIJings in tobacco. Canada fish, two pounds, or three pounds ten shillings in
tobacco. English meal sold at ten shillings the bushel, and Indian corn
at eight. After a careful inspection of the old records, I cannot find any
rates of labor specified, although they too are mentioned, as forming a
part or the subject of proclamations."
Holmes, in hIS Annals, supplies one deficiency in Burk's price current, namely, the price of a passage from Europe.
" The enterprizing colonists being generally destitute of families, Sir
Edward Sandys, the treasurer, proposed. to the Virginia Company to
send over a freight of young women to become wives Jhr the planters.
The proposal was applauded; and ninety girls, "young and uncorfupt," were sent over in the ships, that arrived this year, (1620) and,
the year following, sixty more, handsome and weH recommended to the
company for their virtuous education and demeanor. The price of a
wife, at the first, was one hundred pounds of to.bac,co: but, as the number became scarce, the price was increased to one hundred and fifty
pou,nds, tbe value of which, in money, was three shilling~ per pound.
This debt for wives, it was ordered, should have the precedellcy of all
other debts, and be first recoverable."
The Rev. Mr. Weems, a Virginia writer, intimates that it would
have done a man's heart good, to see the gallant, young Virginians,
hastening to the water side, when a ship arrived from London, each carrying a bundie of the best tobacco under his arm, and each tal{illg buck
with him a beautiful and virtuous young wife.
In Pennsylvania, as well as in the other colonies, a considerable traffic was carried on by barter: and we recollect
having read in the Minutes of Assembly, that, about the
year 1700, a proposition was made to make domestic products a legal tender, at their current rates. The proposition was rejected. But Holmes states that, in Maryland,
as late as the year 1732, an act was passed " making tobacco a legal tender at one penny a pound, and Indian corn
at twenty pence a bushel."
The colonists had hardly become numerous enough to
require more than two or three hundred thousand dollars
of medium for domestic uses, before specie began to flow
in abundantly. Their trade with the West Indies and a
clandestine commerce with the Spanish Maine, made silver so plentiful, that, as early as 1652, a mint was established in New England for coining shillings, sixpences
and three penny pieces.*
Gabriel "rhomas, in his account of Pennsylvania, published about the year 1698, says silver was more plentiful
in that province than in England.
Plentiful, however, as it was, there was not enough to
satisfy the wishes of every body. Attempts were, therefore,
made to keep the precious metals in the country, by raising the official value of the coin. Virginia, in 1645, prohibited dealings by barter, and established the Spanish
piece of eight at six shillings, as the standard currency of
it "The law enacted that" Massachusetts" and a tree in the centre,
be on thp. one side: and New England, and the year of our Lord, and
the figure XII, VI, 111, according to the value of each piece, be on the
other side."-Massachusetts Laws. The several coins had N. E. on one
side, and the number denoting the number of pence, with the year 1652,
on the other. The date was never altered, though more coin wa.
stamped annually for thirty years."-Holmes.
In 1662, the Assembly of Maryland besought the proprietary" to take
orders fcJr setting up a mint," and a law was passed for that purpose.
" The great hindr:lnce to the colony in trade for the want of money" is
assigned as the reason for the measure. It was enacted, that the money coined shall be of as good silver as English sterling; that every
shilling, and so in proportion for other pieces, shall weigh above nine
pence in such silver; and that the proprietary shall accept of it in payment of his rents and other debts. This coin being afterwardil circu..
lated, the present Jaw of Maryland was confirmed in 1676. This is
the onl,Y law for coining money, which occurs in colonial history, previous to the American Revolution, excepting the ordinance of Massachusetts in 1652."-Chalmers, 1. 248.
that colony. 'fhe other colonies affixed various denominations to the dollar, and the country exhibited a singular
spectacle. Its money of account was the same nominally
as that of England. Its coin was chiefly Spanish and
Portuguese. But, what was a shiHing in Pennsylvania,
was more than a shilling in New York, and less than a
shilling in Virginia.
In the third year of Queen Anne, an attempt was made
to put an end to this confusion, by a Royal Proclamation
and act of Parliament, fixing the plantation pound at two
ounces sixteen pennyweights sixteen grains of silver, of
the fineness of common pieces of eight, at six shillings and
ten pence half-penny per ounce; but, from various causes,
the act proved effective in Barbadoes only. Tn South Carolina, the dollar was estimated at 4s. 8d , in Virginia and
New England at 6s., in Pennsylvania, New Jersey, and
Maryland at 7s. 6d., and in New York and North Carolina at 8s.
These are to be understood as the rates at which the
currencies of the different colonies were finally settled.
They were varied from time to time to suit the varying
views of the lawgivers. * Confusion in dealing was thereby introduced, and some injustice was done to individuals:
but the chief object of these changes, namely, that of keeping a great stock of the precious metals in the country,
was not effected. In proportion as the denominations of
the coin were raised, the merchants raised the price of
their goods. The laws of nature counteracted the laws of
the land. The people exchanged their surplus gold and
silver for such things as they wanted still more than gold
and silver-leaving just as much money in the country as
its domestic trade required, and not one shilling more.
of Dr. Franklin, in his
HistQricaI Account of Pennflylvania, says,
" During this weak practice, silver got up by degrees to eight shillings
and nine pence per ounce, and English crowns were six, seven, and
eight shillings a piece."
PROVI~CIAL
PAPER MOXEY.
CHAPTER II.
10z. Silver.
Ewh. 1cith
London.
10z. Silver.
1702
133
65. 10~d. 1728
340
18s.
380
1705
135
7
1730
20
500
1713 - 150
8
1737 26
550
1716 - 175
9
3
1741
28
1717 - 225
12
1749 - 1100 - GO
1722 - 270 - 14
The ill-judged expedition of the Carolinians against St.
Augustine, in 1702, entailed a debt of 6000 pounds on that
colony, for the discharge of which a bill was pas~ed by the
Provincial Assembly for stamping bills of credit, which were
to be sunk in three years by a duty laid upon liquors, skins
and furs. For five or six years after the emission, the paper passed in the country at the same value and rate as the
sterling money of England. t
To defray the expenses of an expedition against the Tuscaroras, and to accommodate domestic trade, the Legislature of South Carolina established a public Bank in 1712,
and issued 4t;,000 pounds in bills of credit, called Bank
bills, to be lent out on interest on landed and personal security, and to be sunk gradually at the rate of 4000 pounds a
year. Soon after the emission of these Bank bills, the rate
of exchange and the price of produce rose, advancing in
the first year to 150, and in the second to 200 per cent.t
~
p.82.
ff
of its paper.
1700 to 1709
Uold.
Silver.
15 lOs. Ode
5 10 0
5 10 0
9s. 2d.
1709 to 1720
6 10:!
1720 to 1723
7 5
1723 to 1726
fj
(3(3
83
1726 to 1730
6 3 9
8 1
1730 to 1738
6 9 3
8 9
We have no account of the bullion market in provincial
Pennsylvania, subsequent to the year 1738, but this table
shows that those who represented to Adam Smith that the
paper of the colony suffered no depreciation, were misled
by making neither gold nor silver the standard, but by
making the paper the standard of itself. As the Pennsylvania pound current never changed its name, they thought
it never changed its vaJue.*
The following table shows the rate of exchange of the
7/- It is curious to observe the
similarity of the reasoning of the supporters of this paper money with that of the anti-bullionists of a subsequent period. A merchant of Boston writing to his friend in England
in 1740, uses the following language.
" Upon the continuance of a favorable turn in the trading circumstances of the province of New England, the Government might stop
at any rate which silver should fall to, and make that rate the fixed
silver pound, and make it a lawful tender; and common consent or acceptance of the people would complete the scheme of silver money.
And thus the pound sterling is fixed in England at three ounces seventeen penny weights and two grains of silver, of a certain fineness, or
silver at five shillings and two pence per onnce.
" But if that kingdom were under our unhappy circumstances, as
not having a sufficiency in value in silver and all other expo~ts to discharge the whole demand of their imports: it would then be next to
a miracle if silver did not rise to above five shillings and two pence
per ounce in the market, in proportion to the balance of debt against
them ~ and their trading circumstauces continue to decline, as ours
bave; their silver would be brought to twenty seven shillings per ounce,
as ours is, and the current money of Great Britain be at the rate of
twenty shillings per ounce, whatever the lawfnl money might be. 17
Anderson, vol. iii. p. 498.
Here we have the doctrine clearly stated that when paper is at a discount, it is not paper that has fallen, but silver that has risen; and the
English Anti-Bullionists are thus deprived of all claim to originahty in
10
11
12
13
London
14
PROVINCIAL
PAPER MONEY.
15
16
17
18
well disposed. Besides the eight hundred persons, subthe needy part of the province, in general, favored the scheme. One of their votes will go as far in popular elections as one of the most opulent. The former are
n10st numerous, and it appeared that by far the majority of
representatives for 1740 were subscribers to or favorers of
the scheme, and they have ever since been distinguished
by the name of the Land Bank House.
" Men of estates and the principal merchants in the province abhorred the project and refused to receive the bills,
but great numbers of shopkeepers who had lived for a long
time before upon the fraud of a depreciating currency, and
many small traders, gave credit to the bills. The directors,
it was said, by a vote of the company became traders, and
issued just what bills they thought proper without any fund
or security for their ever being redeemed. 'They purchased every sort of commodity, ever so much a drug, for
the sake of pushing off their bills, and by one means or
other a large sum, say perhaps fifty or sixty thousand
pounds, was abroad. 'To lessen the temptation to receive
the bills, a company of merchants agreed to issue their
notes or bills redeemable hy silver and gold at distant periods, much like the scheme in 1733, and attended with no
better effect. '.rhe Governor exerted himself to blast this
fraudulent undertaking, the Land Bank. Notonly such civil
and military officers as were director~ or partners, but all
who received and paid any of the bills, were displaced. The
Governor negatived the person chosen Speaker of the House
being a director of the Bank, and afterwards negatived 13
of the new elected counsellors who were directors or partners in, or reputed favorers of, the scheme. But all was
insufficient to suppress it. Perhaps the f!lajor part, in numLer, of the inhabitants of the province openly or secretly
were well-wishers to it. One of the directors afterwards
acknowledged to me that although he entered into the
company with a view to the public interest, yet when he
found what power and influence they had in all public
concerns, he was convinced it was more than belonged to
them, more than they could make a good use of, and there.fore unwarrantable. Many of the most sensible, discreet
persons in the province ~aw a general confusion at hand.
Application was therefore made to Parliament for an act to
scriber~
19
suppress the company, which, notwithstanding the opposition of the agent, was very easily obtained, and thereon it
was declared that the act of the 6th of King George the
First, chapter eighteenth, [the Bubble Act] did, does, and
shall extend to the colonies and plantations in America.
Had not the Parliament interposed, the province would
have been in the utmost confusion, and the authority of
Government entirely in the Land Bank Company."*
Every scheme for fixing the value of the provincial bills
of credit having failed, ., a new project was, in 1741, reported by a committee of the House and accepted, and afterwards concurred in by the council and consented to by the
Governor. This was a scheme to establish an ideal measure, in all trade and dealings, let the instrument be what
it would. The act which passed the Court declared that
all contracts should be understood payable in silver at 6s.
Sd. the ounce, or gold in proportion. Bills of a new form
were issued, 20s. of \vhich expressed in the face of the bill
three ounces of silver, and they were to be received accordingly in all public and private payments, with this saving, that, if they should depreciate in their value, an addition should be made to all debts as much as the depreciation from the time of contract to the time of payment.
How to ascertain the depreciation from time to time was
the great difficulty in framing the act. To leave it to a
common jury would never do. There were some doubts
whether a House of Representatives would be wholly unbiassed. At length it was agreed that the eldest counsellor
in each county should meet once a year to ascertain the
depreciation.
" This at best must have been a very partial cure. It
did not prevent the loss from the depreciation of the bills
in those persons' hands through which they were continually passing. All debts which were contracted and paid
between the periods when the value of the bills was fixed
annually, could not be affected by such fixing, and unless
in debts of long standing which the debtor would not pay
without an action at law, demand was not ordinarily made
for depreciation, and what rendered it of little effect in all
other cases, the counsellors appointed to estimate the de
it
20
~~,
4.
21
difference in their value between the time when h~ received them and the time when he parted with them. The
apprehension of their depreciation tended to increase it,
and occasioned a quick circulation; and for some time,
even for English goods, which ordinarily sell for the long..
est credit, no body pretended to ask credit. They were
constantly, however, dying in somebody':::; hands, though nobody kept them long by them. Business was brisk, men
in trade increased their figures, but were Rinking the real
value of their stock, and, what is worse, by endeavors to
shift the loss attending such a pernicious currency from
one to another, fraud ulent dispositions and habits are
acquired, and the morals of the people depreciate with the
currency.
" The Government was soIicting for the reimbursement
of the charges in taking and securing Cape Breton, and by
the address, assiduity, and fidelity of William Bollan, Esq. ;
who was one of the agents of the province for that purpose,
there was a hopeful prospect that the full sum, about
180,000 sterling, \\-'ould be obtained.
H 1V1r. I-Iutchinson, who was then Speaker of the House
of Representatives, imagined this to be a most favorable
opportunity for abolishing the bills of credit, the source of
so much iniquity, and for establishing a stable currency of
gold and silver for the future. A bout two millions two
hundred thousand pounds would be outstanding in bills
in the year 1749. One hundred and eighty thousand
pounds sterling at eleven for one-which was the lowest
rate of exchange with London for a year or two before, and
perhaps the difference was really twelve to one-would redeem nineteen hundred and eighty thousand pounds,
which would leave but two hundred and twenty thousand
pounds outstanding: it was therefore proposed that the
sum granted by Parliament should be shipped to the province in Spanish milled dollars and applied for the redemption of the bills as far as would serve for that purpose, and
that the remainder of the bills should be drawn in by a tax
on the year 1749. This would finish the bills. For the
future, silver of sterling alloy at 6s. 8d. the ounce, if payment should be made in bullion, or otherwise milled dollars at 6s. each, should be the lawful money of the province,
and no person should receive or pay within the province,
22
23
conditional, and depended upon a grant of Parliament for reimbursement of the charge of the Cape Breton expedition.
This being at a distance and not absolutely certain, the act
had no sudden effect upon the minds of the people, but when
the news of the grant arrived, the discontent appeared more
visible, and upon the arrival of the money there were some
beginnings of tumults, and the authors and promoters of
the measure were threatened. The Government passed an
act with a severe penalty against riots, and appeared determined to carry the other act for exchanging 'the bills into
execution. The apprehensions of a shock to trade proved
groundless: the bills being dispersed through every part
of the province, the silver took place instead of them, a
good currency was insensibly substituted in the room of a
bad one, and every branch of business was carried on to
greater advantage than before. The other Governments}
especially Connecticut and Rhode Island, who refused,
upon being invited, to conform their currency to the l\Iassachusetts, felt a shock in their trade from which they have
not yet recovered. The latter had been the importers for
Massachusetts, of West India goods for many years, which
ceased at once."*
From this account of the operation of the provincial paper money of Massachusetts, the reader may judge of its
operation in the other colonies; and thereby learn to estimate properly that provision of the United States' Constitution . which forbids any State" to emit bills of credit, pass
any law violating the obligation of contracts, or make any
thing but gold and silver a legal tender in the payment of
debts."
The succ.essful issue of the experiment in Massachusetts
did not induce the other Governmel'lts to take the necessary
measures for substituting a metallic for a paper medium.
But, as the British merchants trading to the colonies were
sufferers by the monetary system of the day, an act of
Parliament was passed in 1763, " to prevent paper bills of
credit, hereafter to be issued in any of his lUajesty's colonies or plantations in America, from being declared to be a
legal tender in payment of money, and to prevent the legal
tender of such bills as are now subsisting from being pro* Hutchinson, p. 440.
24
CONTINENTAL MONEY.
25
CHAPTER III.
Of Continental Money.
According to an estimate by the Register of the Treasl\ry,
in 1790, the issues of continental money were as follows,
viz:
Old Emission.
Dolls.
In
1776 -
1777 1778
1779
1780
1781
90ths.
20,064,464 66
26,426,333
1
66,965,269 34
149,703,856 77
8~,908,320 47
11.408,095 00
$357,476,541
45
New Emission.
Dolls. 90ths.
891,236 80
- 1,179,249 00
$2,070,485 80*
26
CONTINENTAL MONEY.
Till the issues exceeded nine millions, the bills, aecording to the concurrent testimony of Mr. Jefferson and Mr.
Paine, passed at their nominal value.
The depreciation
afterwards was very great. The rate of exchange for hard
money at Philadelphia, ftom January 1777 to May 1781,
was as follows, according to a table take from the merchants' books and published by Mr. Pelatiah 'Vebster.
1777. January,
February,
March,
April,
May,
J une,
July,
August,
September,
October,
November,
December,
1778. January,
February,
March,
April,
May,
June,
July,
August,
September,
October, November,
December,
1779. January
February,
March,
Ii 17.79. April,
12~,
:May,
2
June,
2~
July,
2~
August, 2~
September,
3
October, 3
November,
3
December,
3 1780. January. 3
February,
4
l\Iarch,
4
April,
5
May,
5
June,
6
July,
5
August, 4
September
4
October, 5
November,
5
December,
5 1781. January, 6
February,
6
March,
7, 8, 9
April,
10
May,
10,11
1~
14,
22,
18,
16,22
22, 24
20, 18
19, 20
20
- 20, 28
30
- 32,45
- 45,38
- 40, 45
- 45, 55
- 60, 65
60
60
60
- 60, 65
- 65, 75
75
- 75, 80
- 80, 100
100
100
100, 120
120, 135
135,200
200, 500
CONTINENTAL MONEY.
27
An account taken from the books of merchants in Virginia shows that the depreciation there regularly fol!owed
that in Philadelphia, though, towards the close, it sometimes Jagged a month or more behind. Thus, when exchange was at Philadelphia at 100 for 1, in January, 1781,
it was in Virginia at 75 for 1 : and in April, when exchange
in Philadflphia was at 135 for 1, it was in Virginia at
100 for 1.
As late as May, 1781, speculations were entered into at
Philadelphia, to purchase continental money at 225 for I,
and sell it at Boston at 75 for 1.
It is worthy of remark " that the depreciation of continental money never stopped the circulation of it. As long
as it retained any value at aU, it passed quick enough: and
would purchase hard money or any thing else, as readily
as ever, when the exchange was 200 for 1, and when every
hope, or even idea, of its being ultimately redeemed at
nominal value had entirely vanished."
The facility of raising ways and means, in the early part
of the war, by issues of paper, led to much extravagance
ill the commisbary department, and prevented the establishment of a sound system of finance. It is said that when
a proposition was before Congress to estab1ish a regular
revenue system, one member exclaimed, "Do you thinh,
gentlemen, that I will consent to load my constituents with
taxes, when we can send to our printer, and get a waggon
load of money, one quire of which will pay for the whole !"t
Our ancestors were lavish of their blood, in defence of
their rights. If it was through a wjsh to save their
treasure, that they resorted to paper money, they did not
succeed in their object. As a mode of raising revenue, it
might be compared to a tax, the expenses of collecting
which were many times as great as the sum brought into
the treasury. 'fhe benefit the Government derived from
it, was in no way commensurate with the burden it imposed on the people. Most of the loss fell on the Whigs
as it was in their hands the paper depreciated. The Tories,
who had from the beginning no confidence in it, made it
a rule to part with it as soon as possible.
This continental money was, in its true character, a siro... P. ,V.
t lb.
28
CONTINENTAL MONEY.
CONTINENTAL MONEY.
29
through the States, that no considerations of justice, religion, or pGlicy, or even experience of its utter inefficiency,
could eradicate it : it seemed to be a kind of obstinate delirium, totally deaf to every argument drawn from justice and
right, fr Jill its natural tendency and mischief, from common
justice, and even from common sense.
"Congress began, as early as Jan. 11th, 1776, to holdup and recommend this maxim of manaism, when continen
tal money was but five months old. Congress then resolved
that' whoever should refuse to receive in payment continental bills, should be declared and treated as an enemy of
his country, and be precluded from intercourse with its inhabitants,' i. e. should be outlawed: which is the severest
penalty (except of life and limb,) known to our laws.
"This ruinous principle was continued in practice for
five successive years, and appeared in all shapes and forms,
i. e. in tende'I" ads, in limitation of prices, in awful and
threatening declarations~ in penal laws, with dreadful and
ruinous punishments) and in every other way that could be
devised, and all executed with a relentless severity by the
highest authorities then in being, viz. by Congress, by Assemblies and Conventions of the States, and by committees
of inspection (whose powers in those days were nearly sovereign,) and even by military force: and though men of
all descriptions stood trembliug before this monster of force,
without daring to lift a htind against it during all this period,
yet its unrestrained energy always proved ineffectual to its
purposes, but in every case increased the evils it was des'jgned to remedy, and destroyed the benefits it was intended to promote: at best it~ utmost effect was like that of
water sprinkled on a blacksmith's forge, which, indeed,
deadens the flame for a moment, but never fails to increase
the heat and flame of the internal fire. Many tltousand families of full and easy fortune, were ruined by these fatal
measures, and lie in ruins to this day (1790) without the
least benefit to the country, or to the great and noble cause
in which we were then engaged."
After this account of the nature of the system, the reader will readily believe Mr. Webster, when he says, in an
essay published in March, 1780, "Frauds, cheats, and
gross dishonesty are introduced, and a thousand idle ways
of living are attempted in the room of honest industry,
30
CONTINENTAL MONEY.
31
nentaI money and of the State bills, gave t.he fatal blow to
the system, in May 1781. l\'1r. Webster gives a minute account of the proceedings; but we deem it unnecessary to
transcribe them, for, as he justly observes, " they will appear to a stranger as intricate and as hard to understand
as the prices of stocks in Change Alley." We dOli ht not,
however, " that they were perfectly understood by people of
all ranks at that time, inasmuch as every variation of the
exchange altered the value of all their cash on hand."
" Thus," he exclaims, after having narrated the proceedings of the Executive Council, and their important effects,
" thus fell, ended, and died, the continental currency, aged
six years. Bubbles of another sort, such as the l\'lississipi
scheme in France, and the South Sea in England, lasted
but a few months, and then burst into nothing: but this
held out much longer, and seemed to retain a vigorous constitution to its last: for its circulation was never more brisk
than when its exchange was 500 to one; and yet it expired
without a groan or struggle; and I believe of all things
which ever suffered dissolution since life was first given to
the creation, this mighty monster died the least lamented.
" If it saved the State, it has also polluted the equity of
our laws; turned them into engines of oppression and
wrong: corrupted the justice of our public administration:
destroyed the fortunes of thousands of those who had the
most confidence in it; enervated the trade, husbandry and
manufactures of our country, and gone far to destroy the
morality tr our people."
Many who are yet hving can attest the truth of this statement.
CHAPTER IV.
32
P.W.
t From the statements of Mr. Robert lUorris, the accounts of the Government with the Bank were as follows:
Cr.
Dr.
47,082
APlil 2d, - 1782 - 252,918 300,000
147,082
July
- 1782 - 252,918 400,000
146,606
-October
- 1782 - 253,394 400,000
46,606
January
- 1783
53,394 100.000
46,606
April
- 1783
53,394 100,000
J29,800
July
- 1783
129,800
164,781
October
. 1783
164,781
January 1st. 1784, the debt was discharged.
The last column shows the amount in which the Government was in
debt to the Bank, at the different periods mentioned.
33
June 21st
34
BA~K
OF NORTH AMERICA.
35
with one hand, and borrowed with the other, leaving the
Bank but 70,000 dollars at most for its proper operations.
On this amount it undertook to make advances to the Government and to individuals; but as the experience of the
evils of continental money was fresh in the minds of the
people, some difficu~ty was encountered in giving currency
to the notes of the Bank. To remo\;e this" prejudice" the
gentlemen who were interested in the institution, '''ere, as
\ve have learned from undoubted private authority, in the
practice of requesting people from the country and laboring
men about town, to go to the Bank and get silver in exchange
for notes. 'Vhen they went on this errand of neighborJy
kindness, as they thought it, they found a display of silver
on the counter, and mcn employed in raising boxes containing sil vel', or supposed to con tain sil rer, from the cellar into the Banking room, or lo,vering them from the
Banking room into tbe cellar. By contrivances like these,
the Bank obtained the reputation of possessing immense
wealth; but its hollowness was several times nearly made
apparent, especially on one occasion, when one of the copartners withdrew a depo~it of some five or six thousand
dollars, when the whole specie stock of the Bank did not
probably exceed twenty thousand.
By these means, and by the assistance of the United
States Government, the notes of the Bank became current;
the spring of 1780. On the 17th of June, it was resolved to open a
security subscription to the amount of 300,000 pounds Pennsylvania
currency, in real money, the subscribers to execute bonds for the amount
of their subscription, and to form a Bank for snpplying the army."
He afterwards speak::; of some of these subscriptions being transferred to
the Bank of North America.
From the journals of Congress, it appears that the Board of Treasury
was directed to deposite in this Pennsylvania Bond-Bank, "hills of exchange, in favor of the directors thereof, on the ~Iinisters of the United
Slates in Europe, or any of them, and in such sums as shall be thought
convenient, but not to exceed in the whole 150,000 sterling."
\Vere the 70,000 dollars which were subscribed by individuals to the
Bank of North America, paid in bonds or in money? \Vas a part of the
470,000 dollars received by the French frigate, used in redeeming some
of these bonds: and was it in this way subscriptions were transferred
from the old Bond Bank to the Bank of North America: or were the
70,000 dollars paid ill by individuals without any trafficking with Govern.
ment? These questions are, perhaps, rather curious than useful: but
our knowledge of the contrivances for forming Balik stock in our own
day, makes us desire to see an explanation of the 70,000 dollars sub.
scription by iudividuals.
36
37
38
CHAPTER V.
39
40
uno,
41
42
BANKING FROM
1780 TO 1810-11.
CHAPTER VI.
Names.
Instituted.
1781-2
1784
1784
1790
1791
1792
1792
1792
1792
1792
1792
1792
1792
1793
1793
1793
1795
1795
1795
1795
1795
1796
1799
1799
1799
1800
1800
1801
1801
1801
1802
1802
Capital.
$ 2,000,000
1,600,000
950.000
300~OOO
400,000
260,000
640,000
1,200,000
100,000
500,000
930,000
500,000
400,000
160,000
500,000
3,000,000
100,000
110,000
1,200,000
400,000
100,000
200,000
2,000,000
300,000
300,000
50,000
120,000
400,000
75,000
800,000
300,000
200,000
Hudson Bank, N. Y.
43
Instituted.
Capital.
1802
1802
1S03
1803
$ 200,000
150,000
1,250,000
150,000
1803
460,000
1803
550,000
1803
100,000
1803
1803
1803
1803
1803
1803
1803
1803
1803
1803
1804
1804
1804
1804
1804
lS04
1804
ISO!
1804
1804
1805
1805
lR05
1805
180G
1806
]806
1806
1807
1807
1807
1807
1807
1807
1807
1807
1807
1808
25,000
100,000
1,800,000
150,000
2,000,000
200,000
200,000
150,000
120,000
68,000
200,000
3,000,000
350,000
300,000
225,000
300,000
200,000
150,000
)00,000
100,000
150,000
50,000
60,000
60,000
1,500,000
1,000,000
100,000
200,000
200,000
1,000,000
500,000
100,000
500,000
150,000
1,250,000
250,000
200,000
200,000
300,000
44
Instituted.
1809
1809
1809
1810
1810
1810
1810
1810
1810
1810
1810
1811
1811
1811
1811
1811
1811
1811
1811
1811
181l
1811
1812
1812
1812
1812
1812
1812
1812
1812
1812
1812
1812
1812
1812
1812
1812
1812
1812
1812
1812
Total,
Capital.
$100,000
250,000
50,000
1,600,000
1,000,000
500,000
600,000
600,000
..300,000
300,000
2,000,000
500,000
600,000
3,000,000
200,000
200,000
400,000
200,000
fiOO,OOO
500,000
1,800,000
750,000
6,000,000
2,000,000
500,000
100,000
250,000
1,200,000
800,000
300,000
400,000
400,000
200,000
200,000
1,000,000
1,000,000
1,500,000
120~OOO
75,000
200,000
1,500,000
1,000,000
1,000,000
),000,000
$77,258,000
45
46
47
the capital stock really paid in, amounted to only the sum
of three thousand and eighty-one dollars and eleven cents.
"The directors never declared any certain dividend of the
profits of the Bank, but once a year paid to the stockholders
interest generally at the rate of eight pel' cent. per annum
on the sums they had respectively paid in, and the residue,
amounting in some years to one hundred and thirty dollars
each, the directors divided among themselves.
" According to the books containing the weekly state of
the Bank, there were several periods when the amount of
bills in circulation far exceeded the amount of notes due
the Bank; for instance, on the twenty-fifth day of l\farch,
1805, the amount of bills in circulation was seventy-two
thousand two hundred and eleven dollars, and the amount
of debts due the Bank was fifty-three thousand two hundred and seventy-five dollars: at some periods, anterior to
the ~9th day of l\Iarch, 1808, the Bank had in circulation
from sixty to seventy thousand dollars. On the 28th day
of March 1808, there was in said Bank, in specie and
bills of other Banks, three hundred and eighty dollars and
fifty cents, and the Bank had twenty-two thousanf! five
hundred and twenty-four dollars of their own hills in circulation."
Under this system, the Bank continued in operation about
four years: and then eleven of the directors transferred their
interest in the institution to the agent of Andrew Dexter,
jun., of Boston. Each of the directors received thirteen
hundred dollars in consideration of his transferring his
shares; and each of them received back the notes he had
given for instalmeIJts, the whole principal and interest
whereof were then due to the Bank. "The thirteen hundred dollars were paid to some of the directors by notes
signed by Simon Smith and John Harris, as principals,
and Andrew Dexter, jun., as surety: to others by surrendering them notes given by the Bank for money borrowed,
and to others by giving them the notes of individuals which
were the property of the Bank. It appears that all the money
paid to the said directors, was paid out of the Bank with t~
property of said corporation, except that there is charged
to said Dexter, three thousand seven hundred and eightyfive dollars and ninety-five cents paid on that account."
Dexter thus got control of the institution, and having a
Board of Directors disposed to favor his views, he got from
48
BANKING FROM
1790
TO
1810-11.
the Bank, at divers times in the course of the year, its bills
to the amount of seven hundred and sixty thousand two
hundred and sixty-jive dollars, and there was paid to sundry
persons for his use three thousand seven hundred and eighty-five dollars and ninety-five cents."
" From the first connexion of Dexter with the Bank, he
appears, by himself and his agents, to have had the entire
control and management thereof: all his schemes and
plans, however wild and extravagant, were adopted and
~arried into execution without reserve: those of the directors who still pretended to superintend the concerns of the
Bank took no care whatever to guard the interest of the
stockholders or the public.
" Dexter was furnished with as much money as he thought
proper to demand, and prescribed his own terms as to the
security he gave, the rate of interest, and the time and manner of payment. The greatest secrecy was used respecting his negotiations at the Bank to prevent the public from
being alarmed at the immense sum of money which was
so suddenly put in circulation; and at the request of Dexter, the Cashier signed the bills secretly and chiefly in the
night. Dexter never gave any security whatever, except
his own name, for any money received by him from the
Bank. For the first sums delivered Dexter gave his re
ceipts: for other sums he gave receipts to the following
purpose, that he would employ the money as their agent for
their benefit, paying them six per cent. interest therefor, and
redeeming the bills by paying specie for them as often as
they returned to the Bank, the cost of redemption to be paid
by the Bank. After these receipts had been standing for
some time they were taken up by Dexter, and a note given
by him for the whole amount, of the tenor and effect following. "I, Andrew Dexter, jun., do promise the President, Directors and Company of the Farmers' Exchange
Bank, to pay them, on order, - - dollars, in two years from
the date, with interest, at two per cent. per annum: it being however understood, that said Dexter shall not be called upon to make payment until he thinks proper, he being
the principal stockholder, and best knowing when it will
be proper to pay the same." The said note was afterwards given to Dexter, and a note given by him for jive
hundred and seven thousand seven hundred and seventy-one
dollars, bearing date on the 30th of November, 1808 : all
49
the money received by Dexter after that time was delivered to him by order of Harris and Fairbanks, the last of
which was delivered on the 9th of February, 1809, for which
Dexter gave his notes, which are now remaining in the
Bank: one bearing date on the 4th of November, 1808,
for three hundred thousand dollars: one bearing date on
the 30th of the same month for thirty-two thousand dollars,
and one bearing date on the 12th day of December, 1808,
for six thousand dollars: all which notes amount to the
sum of eight hundred and fifty-five thousand sct'en hundred
and seventy-one dollars, payable in eight years from their
respective dates, bearing interest at and after the rate of
two per cent. per annum.
" Out of the amount above stated, as due from the said
Andrew Dexter, jun. to the Bank, ought to be deducted certain drafts or orders drawn on said Dexter by the Cashier,
to take up the bills at different times returned to the Bank,
so far as the said drafts or orders have been paid by said
Dexter. The amount of said drafts or orders, according
to the books of the Bank, still outstanding and unsettled, is
two hundred and four thousand and five dollars, but of
this sum the Committee have no means of ascertaining what
part has been paid by the said Dexter.
"In December, 1808, the credit of the Bank had become very low, and the bills were selling at a large discount: but the said Andrew Dexter, jun., and the other persons who managed the affairs of the Bank, instead of putting
a stop to the emission of thei-r bills, and making some provision for the payment of those in eirculation, redoubled
their efforts to circulate sums to a large amount, when at
the same time they refused the payment of the smallest
sums at the Bank.
" The President and Cashier were incessantly employed
in signing bills :" and" Dexter was continually urging them
to sign bills as fast as possible," telling them that every thing
depended on his having them vf'ry speedily: that if they
were not soon finish~d, he should not be able to dispose of
them, and that at that time he should be able to sell some
of them very well. The bills were made with so much
precipitation, and the officers of the Bank were so much
pressed for time, that said bills were in some instances sent
to Boston without being dated or numbered.
50
llANKING FROM
1790 TO 1810-11.
" There is now in said Bank, eighty-six dollars and fortysix cents of specie. On the 9th of February, 1809, there
had been emitted by said Bank, six hundred and fortyeight thousand and forty-three dollars of their bills, according to their books. Owing to the extreme confusion in
which their mode of keeping their accounts has involved all
their transactions, it is impossible to ascertain with precision the amount of their bills now in circulation: but from
the inquiries and examinations made by the Committee, they
are of opinion that the bills of said Bank now in circulation, amount to the enormous sum of five hundred and
eighty thousand dollars."
J:I'rom the testimony of the Cashier, which is appended
to the report, it appears that the emission of six hundred
and forty-eight thousand eight hundred and forty-three doljars in Bank bills, spoken of by the Committee, took place
between the ~9th of March, 1808, and the 9th of Febuary,
1809, and that previou3 to the first mentioned date, the
Bank had bills in circulation to the amount of forty-five
thousand eight hundred and tweQty-one dollars.
'rhis history of the Farmers' Bank of Gloucester shows
what cunning men can do, when they have a legislative
charter to work with.
When the explosion took place, other New England
Banks exhibited proof that they had been trading on the
same principles, though none, we believe, to the same extent. In a speech in Congress, in February, 1811, Mr.
Desha. of Kentucky, said, 'S The Berkshire and North.
ampton Banks, both of l\lassachusetts, when their vaults
were examined, one had perhaps thirty or forty dollars in
it, the other, I believe, was entirely empty: the Coos Bank,
(I believe it was called,) of New Hampshire, was nearly in
the same situation, and thousands of their bills in circulation at the same time."
Mr. Bunvell, of Virginia, said, " The State of Massachusetts found, upon examining the vaults of the Banks, the
whole of them did not contain specie equal to the paper issued by a single one."
We have no list of the New England Banks that stopped
payment previous to the war: but it is evident from all testimony, that the Banking institutions in that quarter had
extended their operations so far, that the necessary reaction
produced very disastrous consequences.
51
52
BANKING FROM
1790 TO 1810-11.
53
Condy
54
BANKING FROM
1790
TO
1810-11.
BANKING FROl\'I
1810-11 TO 1811-13.
55
CHAPTER VII.
56
BANKING FROM
1810-11
TO
1814-15.
rit of speculation. It was supposed that the mere establishment of Banks would of itself create capital, that a bare
promise to pay money, was money itself, and that a nominal rise of the price of land and commodities, ever attendant upon a plenty of money, was a real increase of substantial wealth. 'fhe theory was plausible, and too well
succeeded. The Farmers' Bank, with a capital of three
hundred thousand doUars, was established in the county
of Lancaster, in the beginning of the year 1810, and was
accompanied by several others in the city, as well as in
other parts of the State.
" These early symptoms of a mania for Banking, induced
the Legislature, on the 19th of March, 1810, to enact a
law prohibiting unincorporated institutions from issuing
Dotes, or pursuing any of the operations of Banks; but in
defiance of its provisions, the system was persevered in,
and even companies incorporated for the purpose of constructing bridges, departed frOlll the spirit of their charters,
converted themselves into Banks, and emitted notes for circulation.
"The war, as might naturally be expected, put a temporary stop to the exportation of specie, and thereby removed
the only check against inordinate issues of paper, which
can possibly exist. This cessation of the returning of notes
for payment, had the effect of inviting the Banks to enlarge
their issues. Loans were made to Government to an immense amount, and to individuals vastly beyond what the
absence of foreign commerce justified, and a gradual depreciation of tile currency was the result. 'I'he increase
of dividends and the facility with which they appeared to
be made, extended throughout the whole Commonwealth
t~e spirit of speculation, already introduced into some counties. The apparent success of the Farmers' Bank of Lancaster, which from the enormous extent of its issues was
enabled to divide upwards of twelve per cent. per annum,
and to accommodate its stockholders witlt loans to double
tlte amount of tlteir stock, had a powerful influence on the
public mind. A Bank by many was no longer regarded as
an instrument by which the surplus wealth of capitalists
could be conveniently loaned to their industrious fellow-citizens, but as a mint in which money could be coined at pleasure, for those who did not possess it before. Under these
BANKING FROM
1810-11 TO 1814-15.
57
58
59
60
1814-15.
BANKING FROM
1810-11 TO 1814-15.
61
On the 19th of November, or eighty days after the suspension of specie payments, the paper of the best Banks of
Philadelphia was at fourteen per cent. discount: yet but
little murmuring was heard, except at the refusal of the
Banks to receive southern and western paper on deposit.
Prices were rising, business was brisk, and if any man
experienced difficulties, he attfibllted them to the war.
Such was the state of things, when, on the 14th of
October, 1814, or jorty-four days after the suspension
of specie payments, 1\11'. A. J. Dallas, Secretary of the
Treasury, recommended the establishment of a National
Bank, with a capital of fifty millions, of which twenty
miliions should be sLlbscribed by Government, and paid
in six per cent. stock. 'rhe rer.;idue of the capital was to
be subscribed by individuals, and was to be paid, six millions in gold and silver coin, in three different instalments,
six millions in treasury notes, and eighteen millions in six
per cent. stock. The Bank was to be bound to lend thirty
millions to Government, and was to be authorized to suspend speeie payments, if the President of the United States
should deem such a suspension advisable.
So desperate was the state of credit, that this desperate expedient was regarded with favor by many members of Congress. 1\lr. Ingham, who was one of its advocates, said,
" should any unexpected difficulties menace the Bank, there
will be a resort to the power of suspending specie payments.
* * * I do not apprehend any serious consequences will result from the temporary suspension of specie payments. The
experiment was tried many years ago in England, and has
been continued up to this time, without injury to the commercial interests, and with essential benefit to the nation
at large. It has also been tried here, and, though Bank
paper is somewhat depreciated thereby, it is solely because it will Hot answer tbe purpose of paying balances
between people of different States, for which specie h~d
usually been employed. For example, the Bank paper of
the District will not enable you to trade east of Baltimore:
yet every article to be purchased with it here, is as cheap
as it was twelve months ago. It may, therefore, be fairly
inferred, that a paper which was receivable all over the
United States in taxes, and might be exchanged for notes
of smaller or greater denomination, or treasury notes in
each of the States, would, from its general convenience
62
BANKING FROM
1810-11 TO 1814-15.
BANKING FROM
1810-11 TO 1814-15.
63
The next day this vote was reconsidered, and the bill
was recommitted to a select committee, who, on the 6th of
January, reported it "ith sundry amend ments, reducing
the capital of the Bank to thirty millions, of which fifteen
were to consist of treasury notes, and ten of public stocks;
and striking out the clauses to compel the Bank to lend
thirty millions to Government, and to authorize it to suspend specie payments. The bill thus amended, was passed
by the House on the "; tIl of Jan uary, by a vote of 120
to 37.
'Vhen the bill was in this form returneu to the Senate~
that body increased the capital of the Bank to thirty-five
millions, and restored Ihe clause authorizing the Bank to
suspend specie paymclJts. In this, the lIouse refused to
concur, and the Senate finally receded from its amendments.
The bill having thus passed both IIouses, was sent to
President l\Iaclison, but he put his veto on it. IIis object~ons were: "The amount of stock to be subscribed will
not, it is believed, be suflicient to produce in favor of the
public credit, any considerable or lasting elevation of the
market price. Nor will allY adequate advantage arise to
the public credit from the sllbEcriptioIl of treasury notes.
The actual issues of these notes Ilearl}' equal, and will soon
exceed, the amount to be su Lscri bed to the Bank. The
Bank will be free from all obligations to co-operate with
public measures." [The meaning of this is, the Bank will
not be compelled to lend thirty millions to Government.]
Lastly: "The proposed Bank will commence and conduct
its operations under an obligatirm to pay its notes in specie,
or be subject to the loss of its ch~rter. 'Vithout such an
obligation, the notes of the Bank, though not exchangeable
for specie, yet resting on good pledges, and performing the
uses of specie in the payment of taxes and other public
transactions, would, as experience has ascertained, qualify
the Bank to supply at once a circulating medium, and
peeuniary aid to Goverament. Under the fetters imposed
by the bill, it is manifest that during the actual state of
things, and probably during the war, the period particularly requiring such a medium and such a source for loans
and advances to Government, notes for which the Bank
would be compellable to give specie in exchange, could
not be kept in circulation."
64
BANKING FROM
1814-15 TO 1815-16.
paper.
CHAPTER VIII.
BANKING FROM:
1814-15 TO 1815-1G.
65
payments would be resumed. That this measure was intended, is evident, from the curtailment of 10aJls immediately consequent upon th{~ sllspension.*
" But, unhappily, the redemption of the pledge was not
demanded by the public at the stipulated time, and the
Banks, urged on bJ' cupidity, and losing sight of moral obligations in their lust for profit, launched out into an extent
of issues unexampled in the annals of folly. The fulfilling
of a promise to pay money, by tendering another promise
equally false, sanctioned by the public acquiescence, led to
the organization of addition.d Banks, under the act of
March, 1814, which had not till then been attempted to be
formed, and a scene of indiscretion in the loaning of Bank
credits was every where exhibited, which realized the anticipations of those who had foretold the ruinous effects of
the paper system. l\1oney lost its value. The notes of the
city Banks depreciated twenty per cent., and those of the
country Banks from twenty to fifty, and specie so entirely
disappeared from circulation, that even the fractional parts
of a dollar were substituted by small notes and tickets,
issued by Banks, corporations and individuals. The depreciation of money enhancing the prices of every species
of property and commodity, appeared like a real rise in
value, and led to all the consequences which are ever
attendant upon a gradual advance of prices. The false
delusions of artificial wealth increased the demand of the
far-mer for foreign productions, and led him to consume in
anticipation of his crops. The country trader, seduced by
a demand for more than his ordinary supply of merchandise, was tempted to the extension of his credit, and filled
his stores, at the most extravagant prices, with goods vastly
if This meeting was composed principally, if not exclusively, of owners of Bank stock, and of debtors to the Banks; and the great body of the
public, knowing httle of the nature of Banking operations, acquiesced
in the measure.
Peace was restored in leBs than six months after the Banks of the Mid ..
dIe States had suspended p1yment.
So confident were some of the public that these institntions would
then redeem the solemB pledge they had given, that" the chests and
secure places were unlocked, and hard money was a,gain in the market, at three or four per cent. above par." Even in .May the discount
on Philadelphia notes was only;) per cent.; but the Banks, nnder one
pretext or another, refused to open their vomits, and the papel' sunk, by
June, to 9, and by November,. to IG per cent. below par.
.
66
BANKING FROM
1814-15 TO 1815-16.
BANKING FROM
1814-15 TO 1815-16.
67
'* Inquiry into the causes of the present state of the Circulating Medium. Philadelphia, August, 1815.
68
69
10
BANKING FROM
1814-15 TO 1815-16.
BANKING FROM
1814-15 TO 1815-16.
71
should trade beyond its capital. But the Banks have the
same means of discharging all their notes as they ever had,
viz: claims upon individuals who have borrowed their
money, and who are now as able to pay as ever they were,
if not in specie, in merchandise and property of equal
value."
In lUarch, 1816, JUr. Carey addressed a series of letters
to the directors of the Philadelphia Bank, some extracts
from which will elucidate the state of affairs, and the state
of feeling.
:II<
:II<
:I(:
*
" Blessed peace at length arrived.
About the middle of l\lay, 1815, the first vessel from
Great Britain entered the port of Philadelphia. She was
quickly followed by others. 'rhey were all full freighted
with the most costly productions and manufactures of that
country. The news was rapidly conveyed into the interior.
The country storekeepers thronged to the city in crowds.
Never, probably, were there so many here before at one
time. The number has been calculated, and I believe
correctly, at two thousand.
" They were all eager to purchase-apparentiy fearful
of not being able to procure adequate supplies-and each
providing himself as largely as if he were to have the monopoly of the trade of his neighborhood.
"Thus, although the importations were uncommonly
great, they were sold off rapidly. The advances on the
invoices were universally high. And some of the importers
nlade independent fortunes on single cargoes.
" This was the golden age of Philadelphia. Thp. rapid
circulation of property-the immensity of business doneand the profits made on that business, produced a degree
of prosperity which she had, perhaps, never before witnessed. Almost every man in every kind of business, was
employed advantageously for himself and for the community. And so high were the prices of imported articles
generally, that domestic manufactures appeared likely to
stand the shock of competition.
H Of the immense quantity of business done in this city
during the last year, some idea may be conceived from the
astonishing fact, that the real bona fide auction sales on
which duties were paid, amounted in about eight months
72
BANKING FROM
1814-15 TO 1815-16.
73
CHAPTER IX.
74
BANKING FROM
1815-16 TO 1816-17.
BANKING FROM
1815-16 TO 1816-17.
75
76
BANKING FROM
1815-16 TO 1816-17.
77
78
BANKING FROM
1815-16 TO 1816-17.
79
80
BANKING FROM
1815-16 TO 1816-17.
81
82
BANKING FROM
1815-16
TO
1816-17.
83
man said was in circulation. The laws were already perfect on this subject. If the executive officers had received
other moneys in payment than those authorized by law, they
had acted without law, without right. The remedy now
proposed, was, IUr. M. thought, :5omething like Sangrado's
practice: more Bank paper of the same sort-more hot
water for the same evil."
Mr. l\lann's motion to amend was rejected.
Mr. Wells opposed the bill on constitutional grounds, and
because he did not believe it would have the effect intended. " This bill," he said; " came out of the hands of the
Administration ostensibly for the purpose of curtailing the
over issue of Bank paper: and yet it came prepared to inflict upon us the same evil, being itself nothing more than
simply a paper making machine; and constituting, in this
respect, a scheme of policy about as wise, in point of precaution, as the contrivance of one of Rabelais' heroes, who
hid hims8lf in the water for fear of the rain. The disease,
it is said, under which the people labor, is the Banking fever of the States; and this is to be cured by giving them
the Banking fever of the United States."
So little effect have the strongest arguments on men
whose minds are made up, that the bill was passed by the
Senate on the 3d of April, by a vote of 22 to 12: and
returned to the House for concurrence in certain amendments, not important enough to deserve E'pecial notice.
When the question on concurrence with the amendments
of the Senate was stated, l\'1r. Randolph declared himself
the holder of no stock whatever, except live stock, and.had
determined never to own any: but, if this bill passed, he
would not only be a stockholder to the utmost of his power,
but would advise every man, over whom he had any influence to do the same, because it was the creation of a
great privileged order of the most hateful kind to his feelings, and because he would rather be the master than the
slave. If he must have a master, let him be one with epaulettes-something that he could fear and respect, something
that he could look up to-but not a master with a quill behind his ear."
Mr. 'Vebster "animadverted on what he caIIed a compromise of principle, on a great moneyed institution, and
the desertion, not only of principles, but of friends, which
had characterized the proceedings of this bill."
84
Niles.
85
the Banks as with independent sovereignties. He gave public notice, on the 12th of Septem ber, that the resolution of
Congress would be enforced. But the delegates of the
Banks of New York, Philadelphia, Baltimore, and the District of Columbia, assembled at New York -on the 16th of
September, bid him defian,ce, by resolutions which they
published, fixing on the 1st of July for the resumption of
specie payments.
The resolution of Congress was, however, of such a nature that it could not easily be evaded; and it was not a little strengthened, by an act of the Legislature of New York,
imposing. a penalty of twelve per cent. on any Bank within
that ~ommonwealth, which should not pay its notes on demand. An act of this kind had been brought before the
Legislature in April, 1815, but th~ fair promises of the
Banks, and the exertions of their agents, prevented its
being adopted in that year. Tired out by the subterfuges
of the moneyed corporatIOns, the Legislature at last adopted this salutary measure.
CHAPTER X.
86
87
88
89
90
BANKING FROM
1816-17 TO 1817-18.
91
92
:RANKING FROM
1817-18
TO
1818-19.
93
to
CHAPTER XI.
In the first part of the next year, the Bank of the United
States conducted operations on the same principles that had
governed it in 1817. In January and February, 1818, the
amount of its discounts and exchange dealings was swelled
to forty-two millions, and in March and April to upwards
of forty-three millions.
During all tl~is time the Bank had not succeeded in getting notes to the amount of ten minion dollars in circulation, but this appears to have been owing not to any disinclination of the directors to issue paper in abundance, but
to a physical inability on the part of the President and
Cashier to sign as many notes as were wanted. To get over
this difficulty, application was made' to Congress to grant
authority to the President and Cashiers of the Branches to
sign notes. One of the objects in establishing the United
94
95
96
BANKING FROM
1817-18 TO 1818-19.
97
98
BA.NKING FROM
1817-18 TO 1818-19.
99
people of the State look to you, gentlemen, for such remedy as may be within your power. The obstacles you have
to encounter in effecting an object of so much importance
cannot be disguised: indeed, 1 fear it may be found im-
100
it may, in a more advanced and dense state of our population, explode in a convulsion of the Government. The
disease, it is true, has taken deep root, but the American
Repu blic is young, and by a vigorous and determined
effort, may, in a few years, exterminate it. Some time
may be necessary to enable these institutions to wind up.
To effect so desirable an object, I would recommend to
the Legislature, to propose an amendment to the Federal
Constitution, providing, that, after a certain period, no incorporated Bank should exist in the United States, or, if
this should be thought going too far, und Banks in any
shape, or to any extent, are useful and necessary, let the
Banking powers be limited, and the system so regulated
and restricted, as to secure the community against the
wide spread ruin and mischief with which we are thre.atened."
These views appear to have been adopted by some members of the Legislature, for on the 4th of January, 1819,
Mr. Bledsoe submitted the following resolutions : 1. Reso!lJed, by the General Assembly of the Commonwealth of Kentucky, that the establishment ofa moneyed
monopoly is hostile to republican liberty.
2. Resoll'ed, That Banks are such a monopoly, and do
Dot depend for their profits upon the correct employment
of the products of industry.
3. Resolved, That as the products of the labor of a nation are the only genuine sources of national wealth, any
corporation or institution which tends to substitute speculation instead of the proper and valuable fruits of this
labor, must be pernicious, and ought to be abolished.
4. Resolved, 1:hat any corporation not promotive of, or
essential to, public good, ought not to exist.
5. Resolved, That all Banks wherein individuals are interested, are moneyed monopolies, tending to make profit to
those who do not labor, out of the means of those who do:
not tending to increase the means of industry, but to profit
of those means unjustly: tending to tax the many for the
benefit of the few: tendlllg to creale a privileged. order,
unuseful and pe~nicious to society: tending to destroyl
liberty, and create a power unfriendly to human happiness:
tending inevitaLly to an unfeeling m:meyed aristocracy, more
to be deprecaH'd than monarchy itself: tending to the destruction of th,~ best hopes of man here and hereafter.
101
CHAPTER XII.
102
103
104
105
106
107
108
so completely prostrated, or that it had been thus unfortunately managed or grossly defrauded. I never imagined
that when it had, at so much expense and loss, imported so
many millions of specie, they had been entirely exhausted,
and were not yet paid for: nor that the Bank was on the
point of stopping payment. It was not until the moment
I was about to commence my journey to Philadelphia, that
I was apprized by a letter from a friend, who had been a
member of the preceding Board, that he feared, in a few
months, the Bank would be obliged to stop payment.
" This was, indeed, appalling news. When I reached
Washington, I received hourly proofs of the probability of
this event. In Philadelphia it was generally expected. My
memory deceives me if I found anyone in or out of the
Bank, who entertained a sanguine belief of its being able
to sustain its payments much longer. On the contrary,
there was, (I think it cannot be forgotten,) ~ public and
general expectation that the nation was about to suffer the
calamity of a ,currency composed entirely of irredeemable
paper. The evil which thus threatened the country, is not
at all to be compared with a suspension of sound currency
in times of war and great national emergencies. The for~
mer can only be conceived by a people who have suffered
under a paper currency in profound peace. What a train
of evils does it produce 1 The destruction of public and
private credit, the national torpor, the individual ruin, the
disgraceful legislation, and the prostration of the morals of
the people, of which you may discover within your own territories some examples, will give you some, but a faint idea
of the calamity which was about to fall on the country.
"'rhus stood the Bank at the organization of the present administration. I was elected and took my seat as
President of the Board on the 6th of l\'Iarch, 1819. But
some time, of course, was necessary to look into the state
of the Bank before measures of relief could be projected.
Its danger, however, was too manifest and too pressing to
allow much time for this purpose. The principal errors
which produced the danger were fortunately of easy discovery, and to them the proper remedy was immediately
applied. The southern and western offices were immediately directed not to issue their notes, and the Bank ceased
to purchase and coHect exchanges on the South and West.
BANKING FROM
1818-19
TO
1819-20.
109
A special meeting of the Board was called, which the nonresident directors were summoned to attend, for the 9th
of April, (the next month,) and a correspondence with the
Secretary of the Treasury was commenced, entreating his
forbearance and his aid. To this officer I should be ungrateful and unjust, if I were not publicly to acknowledge
my obligations, and those of the Bank, for the countenance
and support he afforded to both in this struggle.
"At a meeting of the directors on the 9th of April,
which was very full, the state of the Bank was submitted
to them, a select committee appointed, to whom the subject of its difficulties was referred, and after very mature deliberation that committee made a report, which was unanimously agreed to. The principal means of relief proposed
and ageed to were:
" 1. To continue the curtailments previou8ly ordered.
2. To forbid the offices, at the South and 'Vest, to issue
their notes when the exchanges were against them. 3.
To collect the balances due by local Banks to the offices.
4. To claim of the Government the time necessary to
t~ansfer funds from the offices where money was collected to
those where it was to be disbursed, as well as like time
(until the difficulties of the Bank were removed,) to transfer funds to meet the notes of offices paid in the Bank or
other offices than those where they were payable according to their tenor. 5. To pay debentures in the same money in which the duties Oil which the debentures were
se~ured, had been paid.
6. 'fo obtain a loan in Europe
for a sum not exceeding 2,500,000 dollars, for a period not
exceeding three years.
" These measures, simple and obvious as they are, and
some of them so strangely overlooked so long, lifted the
Bank in the short space of seventy days, (from the 6th of
March to 17th of May,) from the extreme prostration
which has been described, to a state of safety, and even in
some degree of power, enabled it to cease its curtailments,
except at points where it had an excess of capital, to defy
all attacks upon it, and to sustain other institutions which
wanted aid, and were ascertained to be solvent; above all,
to establish the soundness of the currency, which had just
before been deemed hopeless; and in a single season of
business (the first) to give to every office as much capital
as it could advantageously employ."
110
The Bank was saved, and the people were ruined. For
a time, the question in Market street, Philadelphia, was,
every morning, not who had broken the previous day,
but who yet stood. In many parts of the country, the disstress was as great as it was in Philadelphia, and in others
it was still more deplorable.
" From all parts of our country" says lVlr. Niles, "we
hear of a l:;evere pressur~ on men in business, a general
stagnation of trade, a large reduction in the price of staple
articles. Real property is rapidly depreciating in its
nominal value, and its rents or profits are exceedingly
diminishing. Many highly respectable traders have become bankrupts, and it is agreed that many others must
" go": the Banks are refusing their customary accomoda..
tions: confidence among merchants is shaken, and three
per cent. per month is offered for the discount of promissory notes, which a little while ago were considered as
good as " old gold," and whose makers have not since suffered any losses to render their notes less valuable than
heretofore."
Four months afterwards, he says,t "It is estimated that
there are 20,000 persons daily seeking work in Philadelphia; in New York, 10,000 able-bodied men are said to be
wandering about the streets looking for it, and if we add
t~ them the women who desire something to do, the
amount cannot be less than 20,000: in Baltimore there
may be about 10,000 persons in unsteady employment, or
actually suffering because they cannot get into business.
We know several decent men, lately "good livers," who
now subsist on such victuals as two years ago they would
not have given to their servants in the kitchen."
A committee appointed by a meeting of the citizens of
Philadelphia, on the 21st of August, to inquire into the
situation of the manufacturers of the city and its vicinity,
reported, on the 2d of October, that in thirty mechanical
and manufacturing branches of trade, which they enumerated, which gave employment to 9188 persons in 1814)
and to 9672, in 1816, there were but 2137 persons employed in 1819.
BANK,ING FROM
1818-19 TO 1819-20.
III
112
BANKING FROM
1818-19 TO 1819-20.
BANKING FROM
1818-19 TO 1819-20.
113
day~laborer feels
it, and
t August 14th.
114
* Weekly Register.
October 23d.
115
116
BANKING FROM
1818-19 TO 1819-20.
"9. The overflowing of our prisons with insolvent debtors, most of whom are confined for trifling sums, whereby
the community loses a portion of its effective labor, and is
compelled to support families by charity, who hft ve thus
been deprived of their protectors.
H 10. Numerous law suits upon the dockets of our courts
and of our justices of the peace, which lead to extravagant
costs and the loss of a great portion of valuable time.
" 11. Vexatious losses arising from the depreciation and
fluctuation in the value of Bank notes, the impositions of
brokers, and the frauds of counterfeiters.
" 12. A general inabilitv in the community to meet with
punctuality the payment of debts even for family expenses,
which is experienced as well by those who are wealthy in
property, as by those who have hitherto relied upon their
current receipts to discharge their current engagements.
"With such a mass of evils to oppress them, it cannot
be wondered at that the people should be dispirited, and th~t
they should look to their representatives for relief. TheIr
patient endurance of suffering, which can only be imagined
by !hose who have habitually intermingled with them at
theH homes and by their firesides, merits the commendation of the Legislature, and prefers a powerful claim to
their interference.
" llavmg thus enumerated the most prominent features
of the general distress, your committee will proceed to point
out the cause which in their. opinion has occasioned it.
That cause is to be found chiefly in the abuses of the Banking system, which abuses consist, .filSt, in the excessive
number of Banks, and, secondly, in their universal bad administration. For the first of these abuses the people have
to reproach themselves, for having urged the Legislature to
depart from that truly republican doctrine which influenced
the deliberations of our early assemblies, and which taught
that the incorporation of tlte moneyed interest, already sufficiently power.lul of itself, 'Was but the creation of an odious
aristocracy, hostile to tile spirit of free government, and
subversive @f tlte rights and liberties of the people. The
second abuse, the mismanagement of Banks, is to be ascribed to a general ignorance of the true theory of currency and Banking, and to the avarice of speculators, desirous
of acquiring the property of others by an artificial rise in
BANKING FROM
1818-19 TO 1819-20.
117
of
118
BANKING FROM
1818-19 TO 1819-20.
119
120
BANKING FROM
1818-19 TO 1819-20.
BANKIXG FROM
1819-20 TO 1820-21.
121
measure, the inclination of a large part of the people, created by past prosperity, to live by speculation and not by
Jabor, was greatly increased: a spirit in all respects akin
to g{lmbling, prevailed; a fictitious value was given to all
descriptions of property: specie was driven from circulation, as if by com mon consent, and all efforts to restore
Isociety to its natural condition were treated with undis\guiscu contempt."
~ Thes.e remarks are followed by a short view of operation. s
subsequent to the war, after \vhich, the Committee declare-"' A new measure, however, remained to be adopted,
that was reaJJy to close the last scene in the drama of error:
the currency had already nearly vanished, but was temporarily restored on the seaboard. The enormity of fictitious
credit began to be fclt: the abusive extent of paper issues
,vas about to effect its own remedy in the State, when Congress created a corporation, with authority to circulate upwards of one lWlldred millions of a new paper medium-a
orporation spreading its hranches over the Union with the
aneful influence of the fabled Upas.
" Awakened by t),e quick succession of events so disasrous, from the dream of perpetual prosperity under which
hey had so long been entranced, the people now find
hemselves involved in distresses, against which no proviion had been made, and from which, they allege, they can
~nd no refuge but in legislative interference."
CHAPTER XIII.
of Pennsylvania,
122
1819-20 TO 1820-21.
BANKING FROM'
ties in different years, as the Banks extended their operations into them.
1809
Bedford,
Lebanon,
Brad ford and
Tio~a,
Somerset and
Cambria,
Cumberland,
Dauphin,
Adams,
1819
$30 to 40
40 to 60
80 to 100 (I815)
20 to 30
130 to 150 (1816-17) 50 to 70
6 to 14
~
~
~
10 to 20 (1814)
3 to 10
15 to 50 (1814)
5 to 20
40 to 60
16 to
30 to
75 to
75 to
40 to 50
80 to 100
80 to 90 (1815)
150 to 200
Northampton
~
Wayne & Pike, ~
80 to J.OO
Bucks,
Huntington,
50 to 60
20 to 30
] 00 to 110 (1814-15) 55 to 65
40 to 60 (1815)
20 to 30
Lan~aster,
Dela \Val'e,
Northumberland,
Bel'ks and
Schuylkill,
~
~
30 to 40
80 to 100
$314,
281,
256,
913,
862,
603,
695,
793,
300,~
BANKING FROM
1819-20 TO 1820-21.
123
124
BANKING FROM
1819-20 TO 1820-21.
125
126
127
CHAPTER XIV.
128
129
130
131
gives the following quotation from" a lute Pittsburg Mercury." "Flour, a barrel, 81 : whiskey 15 cents a gallon:
good merchantable pine boards, 20 cents a hundred feet:
sheep and calves 81 a head. Foreign gOOGS at the old
prices. One bushel and a half of \, heat \ViI! buy a pound
of coffee: a barrel of flour will buy a pound of tea;
twelve and a half barrels will buy one yard of superfine
broadcloth."
While the staples of the western country were at this
low price, the people were deeply in debt to the United
States Government, to the merchants of the Atlantic cities,
to the United States' Bank, to the local Banks, and to one
another. The plentiful issues of paper had led to great
speculations in the public lands. The wild lands of the
West had been sold, in some instances, as high as forty or
fifty dollars an acre. The sum due to Government on account of these purchases, exceeded twenty-two million dollars in the latter part of 1820. The sum due to one of the
branches of the United States' Bank, tlwt at Cincinnati,
exceeded two million dollars. The sums which were due by
the western people to one another, to the local Bauks, and
to t}~e merchants of the Atlantic cities could not easily be
calculated.
To relieve the public distress, the Legi:.;]ature of Ohio
passed a law to prevent property from being sold unless it
would bring a certain amount, to be fixed by appraisers.
This law operated \iery unequally. Another law of the
same State, to prohibit buying and selliug the notes of chartered Banks, would have increased the mischief, if it had
not, happily, been such a law as, from the nature of things,
could not be enforced.
Kentucky adopted what has been called the" relief system," in all its extent. Stop laws, stays of executions, and
replevin acts, followed one another in quick succession.
And Commonwealth's Banks, or State Loan Offices, were
established in Kentucky, Indiana, Illinois, and lVlissouri,
with power to issue millions of paper money. The creditor had no alternative but to receive this paper or wait for
payment till better times should arrive.
Go""ernor Adair, in his message to the Legislature, in
October, 1821, said, that" the paramount law of necessi..
ty" had compelled Kentucky to resort to a policy against
132
133
CHAPTER XV.
134
135
136
137
138
139
CHAPTER XVI.
1814
Georgia,
South Carolina,
North Carolina,
Virginia,
62a,580
1816
1,502,600
3,730,900
3,832,758
1,576,600
2,776,000
3,592,000
5,521,415
9,52:3,080
13,632,773
140
141
142
In August the Banks of Savannah had again the reputation of specie paying Banks: but they refused to give
money to individuals for their paper, unless those applying
for it would agree to take half the amount in bills of the
Darien Bank. It cannot, however, be said that they refused all kinds of accomodation to the public, for while
they would not pay cash for their notes, they would oblige
a holder of them by giving him a draft on New York at
three per cent. advance.*
In this contest the local Banks enlisted the feelings of
the Legislature of Georgia in their favor: and an act was
passed in the beginning of 1821, to repeal the law allowing twenty-five per cent. damages on non-payment of notes,
so far as it might operate in favor of the United States'
Bank; Such a disposition in the Legislature, was an
encouragement to the Banks to evade payment to individuals: and we read, without feelings of surprise, that on a
demand being made in April on the Planters' Bank of
Georgia for 30,000 dollars in specie, the cashier replied
that he would pay in cents only: and that, when a gentleman of Augusta made a demand for specie in June, cents
were tendered to him and counted out at the rate of sixty
dollars a day.t
From that time to this, the people of Georgia have suffered the evils of irregular Banking, sometimes in one
form and sometimes in another. The paper of their Banks
is usually at a discount in the Philadelphia market, exceeding the natural rate of exchange, that is, the cost of
transporting specie. In 1824, complaints were made that
H change"
bills, issued by individuals and corporations~
were in circulation. J n the same year we find the Governor
declaring" that all the Banks should resume specie payments without delay." If they all resumed them, they
could not all maintain them, for Mr. White, of Baltimore,
in a letter to the Secretary of the Treasury in 1830, speaks
of "intelligence having just been received of the failure
of some of the principal Banks of Georgia to redeem
their notes with specie." Complaints of sufferings by the
people of the State have been frequent. In 1824; and
1828 these complaints were very loud. When the Legis..
if
143
144
145
146
147
148
149
May last, when they stated in their exhibit that they had
on hand 214,000 dollars in specie, 140,000 dollars of it
consisted of stock in the United States' Bank. So that, in,tead of keeping the specie in their vaults to take up their
paper, they have vested it in the stock of another Bank,
and were deriving interest from it. It further appears,
from the evidence of the same person, that the amount of
actual specie now in the State Bank at Raleigh, is not
more than 300 to 400 dollars: at any rate, not exceeding
1000 dollars.
" The undersigned have now gone through the details of
the evidence, and stated all the essential facts collected in
the course of their examination. I-Iaving thus embodied
a simple statement of the facts, they would here close their
report, and leave the conclusions and arguments to the
Legislature; but they eel themselves impelled, by a solemn
sense of the duty which they owe to the Legislature and
the country, to take a brief view of the present relation
between the Banks and the people, and the consequence
which must ensue if the Banks are permitted to continue
their operations; and, in doing so, to advert to the report
of the committee of the stockholders of the State Bank at
their late general meeting. It appears that the people of
North Carolina, having already paid to the Banks, since
they went into operation, a profit of about 4,000,000 dollars on their stock-stock, too, three-fourths of which was
manufactured by the Banks themselves in a fictitious and
fraudulent manner-that having paid this immense sum,
exceeding four times the amount of the actual capital stock
ever paid into Bank accord ing to law, they still hold the
notes of the people for more than 5,000,000 dollars, about
four times the amount of the whole circulating medium of
the State. Thus it is in the power of the Ban ks absolutely
to extinguish the currency of the country, and when they
have taken every dollar out of circulation, still to have a
debt against the people to the amount of about 4,000,000
dollars. We say it is in their power to do it; and they intimate pretty plainly that they will do it. The communication from the stockholders of the State Bank, now before the committee, expresses the opinion that it is for the
interest of the stockholders to withdraw their money from
the Bank, and take it under their own management; and
150
151
CHAPTER XVI.
152
153
154
155
156
strongest legal enactments, may be learned from the following extract from a report made to the Senate of the State,
on the 25th of January, 1830.
" The Sutton Bank was incorporated the 11th of March,
1828. The act of incorporation provides-" That the capital stock of said corporation shall consist of one hundred
thousand dollars in gold and silver, to be divided into shares
of one hundred dollars each, which shall be paid in the
manner following, viz. onehalf part thereof on or before
the first day of October (then) next, and the remaining
part thereof on or before the first day of March, in the
year of our Lord one thousand eight hundred and twentynine." And it further provides, that no moneys shall be
loaned or discounts made, nor shall any bills or promissory
notes be made or issued from the said Bank, until the capital subscribed and actually paid in, and existing in gold
and sil ver in said vaults, shall amount to fifty thousand dollars, nor ulhil the said capital stock, actually in said vaults,
shall have been inspected and examined by three Commissioners, to be appointed by the Governor for that purpose,
whose duty it shall be, at the expense of the said corporation, to examine the money actually existing in said vaults,
and to ascertain, by the oaths of the directors of said Bank,
or a majority of them, that the said capital stock hath been
bona fide paid in by the stockholders of said Bank, and towards the payment of their respective shares, and not intended for any other purpose, and that it is intended there
to remain as part of said capitaL"
" On the 26th day of September, 1828, the Governor,
in compliance with an application for that purpose, made
by a committee of the subscribers for stock in said Sutton
Bank, appointed Commissioners to examine the moneys actually existing in vaults of said Bank, as is provided in the
second section of their act of incorporation. On the 27th
day of September, 1828, the Sutton Bank borrowed, on a
deposit of fifty-one thousand dollars in the bills of the City
Bank, the sum of fifty thousand dollars in specie, for one
day only; this same specie was examined by the Commissioners, and the following certificates made out, viz." We, the subscribers, Commissioners appointed for that
purpose, have this day been shown, and have exalJlined, fifty thousand dollars in specie in the vaults of the Sutton
157
A MASA
ROBERTS.
SAMUEL WOOD.
Commissioners."
Eoston, Sept. 27th, 1828.
Just. Peace.
Tt.;-r,:.uJLUng (;(1;
lkis wlLOle
158
159
160
good, bad, and doubtful, due from all other persons to the
Bank, was then less than 200,000 dollars.
Governor Wolcott, in an address to the Legislature of
Connecticut, in May 1826, said, "Except in limited districts of the United States, the condition of our circulating medium is not very dissimilar to that which has been
established by arbitrary Kings in the North of Europe, and
especially by the Autocrat of the Russian Empire. There,
a Bank has been created, and its notes constitute a circulating currency throughout his vast dominions. The credit
which these notes obtain, is derived from revenues which
are established by his sole authority. These revenues are
not indeed paid in Bank notes, but the demand for silver
coin which the revenue establishes, imparts a forced, though
precarious, \Talue to the notes, which value is maintained
and regulated by the reciprocating influences which are
created between the supply and demand for paper and
silver currencies. The effect is, that all property is subject to his will.
"With us the currency which is required by the daily
exchange between all the people, and by which the transactions between farmers, mechanics, lj-\borel's, manufacturers,
and traders is regulated, is alm0st exclusively in Bank
Henes, which are issued by a great number of independent
corporations, which po::;sess an exclusive privilt:~ge of creating notes for their own benefit.
"This monopoly is here so exercised, that neither the
amount of currency which is issued, nor the amount of
that which is suddenly suspended, withdrawn, or annihilated, is subject to any practical limitation, other than
what must arise from the state of foreign and domestic
exchanges, the speculations of individuals, political events,
and the necessities or caprices of the numerous monopolizing incorporations, who entirely control the circulation
of the country.
" 'fhese last observations require no other confirmation
than a reference to the notorions facts, that no coins circulate among the people, except small sums of copper, and
the fractional parts of a dollar in silver, which is our silver unit. Our unit of gold i3 a coin of ten dollars, which,
with its fractional parts, in coins of five dollars, and twO
and one half dollars, have wholly vanished fromcirculation.
161
or
16.2
163
164
are U that it renders necessary about seventy Bankin~ institutions,: that this number must every year be increased,
as the Legislature cannot properly withhold charters from
any who may apply for them: that the competition for
business between these numerous establishments, gives to
individuals a dangerous facility in obtaining loans, and
creates a system of fictitious credits, which, having no base
on real capital, must, at every pinch in the money market,
explode, and bring ruin upon the Banks and their debtors.
Other objections are, that the expen~es of these various
Banks in salaries, rent, &c., amount to a very large sum,
(in Boston alone to 120,000 dollars,) which expenses are
a tax upon stock:" that the country Banks are put to a
great expense in redeeming their bills in Boston; "and
that, after all, the notes of tOOse Banks form a currency, of
different and fluctuating value, instead of that steady and
uniform currency which public convenience requires."
From accounts recently published, it appears that the
number of Banks in Massachusetts, in August, 1832, was
eighty-three, having nominal capitals of the amount of
$24,520,000, notes in circulation of the amount of $7,122,856, and specie on hand of the amount of $902,205 75.
Of these Banks, twenty-two were in the city of Boston.
The greatest amount of specie in anyone of the city Banks
was $127,131 43; the smallest was $2,415 41. The greatest amount of specie in anyone of the sixty-three country
Banks, was $22,966 90; the smallest was $1,022 97.
Massachusetts was first in adopting the paper money
system; and she will probably be among the last to abandon it. Its ramifications there are so numerous, that nearly all the members of the community are compelled to give
it either a willing or an unwilling support.
1814-15 TO 1820-21.
165
CHAPTER XVIII.
July
August September
October November
December
1816.
January
February
March -
Baltimore.
Philad.
20 pr.ct.adv.
15
10
14
20
5
5
10
15
2
5
14
16
20
19
20
21!
15
18
5
9
11
11
15
15
16
14
15
14
14
12
13
18
April
23
14~
l\;lay
20
20
15
12
10
14
16
15
10
June
July
August
September
October
November
December
1817.
January
February
N. York.
7~
9~
9
9
7
7
3
2~
51
52
11
14
12!
13
16
12
12~
12~
9
12~
10&
J2~
12~
6
5
3
2
l~
2!
4~
2&
2!
166
1814-15 TO 1820-21.
~ ~ d i~ ~ ~ ~ ~ ~
~ ~ ~i 5 ~ 5 ~ 5
~ Z ~ i~
------1-
;.s
91613 :1 3"
z ~=
4"
Bank of Gettysburg-h-,
3! -31-0
Harrisburg Bank,
pr pr 6'5 14 pr pr ~
I!
Carlisle Bank,
10 9 4 5 i,2~ 3 3~ 4
3
Bank of Chambersburg,
10 9 4;=3 ,2~:3 3~ 4
3
Westmoreland Bank,
10 9 65 2 !. 10 1515 12~
Lancaster Trading Company,
10 9 2~5 2-~ 3 3 2
2~
Marietta,
10 9 6 5 4 :303545 33
Centre Bank,
10 9 d5 4 10 U130 25
Farmers' Bank of Reading,
10 9 6'5 ,I! 2l2! 15 8
Alleghany .Bank,
10 9 6:5 '4 101550 50
Germantown,
10 9 6:5 14 pr pr pr par
910 6:3 12!3 3; 4
3
York,
Farmers' Ban k of Lancaster,
10 9 6 5 14 pr pr pr par
Swetara,
10 9 6 13l2! 3 4 4
3
Easton Bank,
pr pr PI15 4 pr pr pr pat
Pennsylvania Agri. and 1\1an. Bank, 10 9 61 3!2! 104
40
Bank of \Vashington,
10 9 6 '5 4: 1015 50 45
Northampton Bank,
10 9 pr 5 4 10 pr 2~ 2~
Juniata Bank,
10 9 61 5 4 101550 40
Delaware Bank,
pr pr 65 4 p pr pr I par
Chester County Bank,
pr pr 6,5 4 p pr pr par
Bank of Beaver,
10 9 6 5 4 10156150
Bank of Pittsburgh,
10' 9 615 3 6 pr 5
4
10 9 65 4 10 15.8025
Huntingdon Bank,
Monongahela,
10 9 615 4 10 15 1512~
North Western Bank,
10 9 6:5 4 101550 :35
Union Bank,
10 9 6115 4 506050 50
Northumberland, Union &Columbia 10 9 65 4 2! 5 30 20
Bucks County Bank,
10 9 6j5 4
pr pr par
Farm's. & Mech's. Bank of Pittsburg 10 9 6\3!;4 10 50 40
Far. & l\'Iec. Bank of Greencastle, 10 9 615 I~! 153050 35
Montgomery Bank,
pr \pr pr 5 4
pr pr par
10 9 6 2!:2'; 2'; 2~ 50 40
Silver Lake Bank,
1
11
167
In his speech of Jan. 2d, 1815, 1\lr. Webster said, " the
depreciation of the notes of all the Banks in any place is,
as far as I can learn, general, uniform and equaL" In looking through Grotja.u's Price Current, we have found the quotations of Pennsylvania and Ohio notes to be, for months
together, from five to six, and afterwards ten, per cent. discount, and those of Virginia and North Carolina two to
three per cent. So general seemed to be the rate of depreciation for each part of the country, that the names of
particular Banks were not given in the Price Current, for
more than a year after the suspension of specie paymentS!.
While Philadelphia paper, the standaru in which they were
e.stimated, was always varying in value, as compared with
SlIver, the notes of most of the country Banks had, as compared with one another, a singular equality of depreciation.
This equality lasted for some time artCi' it became the
custom to give regular quotations of the price of Bank paper. It will be seen, by inspecting the table, that in l\lay,
1816, the notes of twenty-seven ont of thirty-five country
Banks of Pennsylvania, were at a discount of ten per cent.
It will alsQ.be seen that the discount was diminished with
jl. regularity approximating to uniformity, up to l\1ay, 1818.
In the succeeding July, the United States' Bank commenced its curtailment: and then the great confusion in
exchanges begun.
In other States the confusion was as great as it was in
Pennsylvania. This may be seen by the following table.
PRICES OF BANK No'rES.
At New York,
Delaware,
par
4 to
Dist;ict of Columbia,
Virginia,
North Carolina,
South Carolina,
Georgia,
Tennessee,
Kentucky,
12~
11
Baltimore,
Marvland,
At Baltimore,
2 to 20
2
2 to
3~
1~
2 to 3
1 to 60
1 to 8 and to 50
1 to 40
1 to 60
1~ to 25
20 to 25
8 to 10
7 to 8
15 to 25
168
At New YO'l'k,
April 7th, 1819.
5
6 to 15
Bank of Kentucky,
Ohio Banks,
Unchartered Bank ~
of Ohio,
S 25 to 75
6
Louisiana,
Indiana, Illinois, ~
aud Missouri,
At Baltimore,
AUEust 7th, 1819.
10 to 50
15 to 60
Nov. 1814,
181fi,
1816,
1817,
1818,
1819,
City Banks.
Country.
Total.
3,363,802
4,810,507
3,416,248
2,355,694
] ,987,945
1,645,000
1!942,479
5,349,247
4,787,722
3,853,866
3,093,966
1,384,325
5,306,281
10,159,754
8,203,970
6,209,560
5,081,911
3,029,325
169
170
in regard to their own interest, in pressing on the community and in holding on to the public stocks.
In 1817, there was a further reduction in the circulation of the Pennsylvania Banks, but the deficIency was supplied by the issues made by the United States' Bank. The
returns of the Pennsylvania Banks, for 1818, were made
some months after the Bank of the United States had begun its grand curtailment.
The local Bank mania may be said to have raged with
more violence in Pennsylvania in the year 1815, than at
any other period: but, if we take the Union throughout,
the mania did not reach its height till the spring of 1818,
or three years after the close of the war. It was in this
year that Vermont, which had been without Banks since
the grand New England explosion of 1808-9, began to
revive the system: and the passion for multiplying paper
issuing institutions became so great, that Mr. Niles was
forced to exclaim-" We see every where new Banks establishing or attempting to be established. Behold forty-three
new Banks authorized in Kentucky-half a score in Tennessee-eight in Ohio-a mob in little Rhode Island-some
in Virginia, Massachusetts, &c.-sixteen petitioned for in
New York-and some wanted in Pennsylvania-haIfa dozen
new ones in Maryland-and from fifty to a hundred more
proposed in various parts of the United States."
Only three months after Mr. Niles had indited this paragraph, the United States' Bank was compelled to commence that course of measures, the effects of which have
been narrated in our previous chapters.
The author of the pamphlet signed" A Friendly Monitor," says, " Every inquiry I have made has entirely convinced me, that every formidable difficulty with which the
Bank has had to contend, has been produced by its agency
for the Governlnent, and particularly by the too rapid reduction of more than eighteen millions of the public debt,
between the months of June 1817, and November 1818,
and the utter impracticability of converting in due time
any reasonable portion of the specific public deposits into
such funds as the public creditors were entitled to demand,
without hazarding the prostration of many respectable institutions."
to
1814-15 TO 1820--21.
171
172
new principles of action were introduced by the early administration of the United States' Bank. If the members
of Congress who granted the charter did not know that the
usual way of paying all instalments after the first is by discounting stock notes, they had not much acquaintance
with either the theory or the history of Banking. As little
credit must be given them for intelligence in respect to
money corporations, if they did not know that the practice
of those who wish to get the control of such institutions is,
to divide their shares, as was done by certain gentlemen in
Baltimore and others in Philadelphia. It was not, surely,
to be expected, that men who associated with the professed
design of making profit for themselves, and who admitted
the Government as a partner, should trammel themselves
with restrictions which the Legislature had, either through
design or oversight, failed to impose. If the courts of law
have not absolutely decided that whatever is not expressly
forbidden is granted in a charter, the Banks find it very
convenient to act on such an assumption.
The history of the country from 1814 to 1818, exhibits
nothing more than the natural results of Banking by corporations, and with paper money, while the Government,
embarrassed in its fiscal concerns, wanted the inclination
or perhaps the ability to apply an adequate. remedy. The
reaction of 1818-19 was only the natural result of the different operations of the preceding years. The irregular
Banking in the South and West in subsequent years, is
only a link a little lower down in the same chain of consequences.
It would appear as if the suspension and resumption of
specie payments might have been productive of little embarrassment, comparatively speaking, if the Government
had, immediately on the close of the war, refused to receive
inconvertible notes in payment of duties. The few Banks
which then existed in Ohio and Kentucky had suspended
payment only a month or two. 'rhe Bank of Nashville actu..
ally maintained specie payments. The dealingEi of the
Banks in the Southern States were of moderate extent.
The new Banks of Pennsylvania were not yet in fuli operation. The principal part of the over-issue wa~ by the
Banks of the great cities of the Middle States, and these
Banks might, by a sale of the public stocks they held, have
obtained the means of redeeming their excess of paper.
173
If this had been done we should have escaped the particular evils recorded in the foregoing chapters, but we should
probably have experienced evils proceeding from the same
source in another form. It was four or five years before
the war, that Banking in New England produced consequences similar to those felt in the other States four or five
years after the war. As the mania spread through New
York, into Pennsylvania, and thence South and West,
Banks were established without those restrictions which
experience in New England had proved to be necessary.
To impose such restrictions would, in fact, have been
hardly in accordance with the philosophy of the day. A
ruling principle in this was, as may be seen by the quotations we have given from the writings of various eminent
men, that inconvertible Bank notes, if they were not quite
as good as gold and silver, were very little inferior to them
as a circulating medium. Many of our readers may smile
at such notions now; but perhaps if they had lived in
those days, they would have thought as their neighbors
thought. Perhaps the present popular notions on the subject of Banks, will, some twenty years hence, be regarded
in the same light as those notions of the anti-bullionists
are at the present period.
'fhat " love of money which is the root of all evil," and
which, operating through the medium of incorporations and
paper bills, is productive of so much evil, would have
brought on the nation great calamities, if we had remained
at peace. The war, and the measures consequent thereon,
gave that evil its particular form and feature. It is that
same" lore of money" which now gives plausibility to the
sophistry by which the present Banking system is supported, as well in the minds of those who suffer as in the minds
of those who are benefitted by the system. lIenee it is that
the former are so easily persuaded that what is gained by
the use of paper money is so much gained by the nation,
and not so nluch gained by one part of the nation from another part. It is so hard for any man, be he merchant, or
be he drayman, to be content with his earnings-we are
all so anxious to become rich i.n a hurry, that we readily
become the dupes of one another, and sometimes in our
haste we dupe ourselves.
174
BANKING FROM
1820-21 TO 1825-26.
CHAprrER XIX.
BANKING FROM
1820-21 TO 1825-26.
175
176
A fair field was then first opened for the credit operations of the Bank of the United States. But by this time
confidence was destroyed, and the spirit of enterprize was
chilled. "There is now," says Mr. Niles, on the 3d of
February, 1821, "little demand for money, except to answer the current purposes of life, and pay old debts, for
either of which it is difficult enough to get, though apparently abundant enough." The capitalists of New York
lnade great complaints in l\'larch of the difficulty they
found in investing their funds: though at this very time,
the country papers were teeming with advertisements by
the sheriff; and three hundred and fifty persons in Baltimore made application, in the month of May, for the benefit of the insolvent laws of Maryland. A tradesman in
Philadelphia advertised for a shop boy, and fifty applications were made for the place in three days. * The building of a new ship excited quite a sensatioo, as something
out of the common order of things. The fear of moneyed
men to embark in new enterprizes, left many laboring people without employment. Solvent men had little disposition to borrow, for they could not tell if prices had yet
reached their lowest limit, or form a satisfactory conclusion
as to the state of affairs in coming years.
In the interior of Pennsylvania, the people were clamorous for the establishment of a State Loan Office. Nor is
this to be wondered at. In the month of June, the Sheriff
of Bedford filled two newspaper columns and a half with
his advertisements: and the Sheriff of Berks offered for
sale 3000 acres of land, besides town lots. In August,
fifty-seven farms were ad vertised for sale by the Sheriff of
W estmore!and, sixty-three pieces of property by the Sheriff
of Northampton, and thirty-seven by the Sheriff of MifHin.
In October, the Sheriff of Cumberland advertised Tor sale
2,380 acres of land, besides twelve town lots with handsome improvements: and in December, the Sheriff of
Berks offered f)r sale the property of forty persons. From
the state of things in six of the fifty-two counties of Pennsylvania, the reader may form some idea of the condition of
affairs generally.
In April or l\tlay, 1821, as nearly as can be ascertained,
if
BANKING FROM
1820-21 TO 1325-26.
177
the city Banks began to expand, and the effects of this ex~
pansion were sensibly felt in August, and still more sensi~
hly in October. Tired of a protracted state of inactivity,
many men began to employ their capitals and their credit,
at a risk rather than on calculation. For some months
things wore a pleasing aspect: but in April and May,
1822, the prospect was again clouded over. Some kinds
of imported goods fell 15 per cent. in Philadelphia; and
United States' Bank stock, \\'hich had been held at 115 in
in February, was sold in N ew York on the first of l\'Iay at
102, and fell before night to 98~.
Other kinds of public securities experienced a deprecia~
tion, but the fall in United States' Bank stock being greatest,
naturally attracted most attention. It was attributed by
some to the machinations of brokers, and by others to a
loan of five millions made by the Bank to the Government,
and to the quantity of stock hypothecated to the different
Banks and insurance offices in New York and other
places.
It is certain that the evils prod uced by paper money
Banks, are greatly increased by t he dealings of these insti~
tutions with Government. The transactions are so large
as usually to derange the regular train of mercantile opera~
tions. The heavy deposits of Government enable the
Banks, at times, to extend their discounts further than is
proper. Their payment of these deposits, and the making
of heavy loans to Government, usually compel them to
curtail their accommodations to men of business.
But it is of less moment for us to know what narticular
operations of the Banks caused the sufferings of i822, than
to know that these sufferings were the consequences of
over-trading produced by over..banking. That there was
an excess of paper issues in part of 1821 and 1822, is evident from the fact that, according to the official returns,
the exports of specie in the year ending September 30th,
1822, amounted to 10,781,933 dollars, and those of bullion
to 28,248, while the imports of specie for the same period
amounted to only 2,958,402 dollars, and those of bullion to
411,444. A Boston paper says that from the 1st of Janu.
ary to the 1st of June, 1822, the imports of specie into that
port amounted to only 70,000 dollars, while the exports, in
the same period, to the East Indies, Brazil, England, and
178
BANKING FROM
1820-21 TO 1825-26.
Cuba, amounted to one million two hundred and five thousand five hundred and six dollars. At one time in 1821,
there were 2,434,000 dollars in specie in the vaults of the
Boston Banks, and by June, 1822, this amount was reduced
to 430,000. In the same period, the specie in the vaults
of the United States' Bank and its branches was reduced
from 7,643,140 to 3,334,452 dollars.
On the 29th of June, Mr. Niles remarked that forty-two
merchants of Boston had stopped payment within the period of a month; and on the 3d of August, he made a
quotation to the following effect from a Salem paper: " We
regret to learn that failures continue to take place almost
daily at Boston, some of them of persons extensively cngaged in comrnerce. We are informed that within the last
two months, there have been more than eighty failures in
that city. The embarrassment, distress, and alarm, which
such a state of things must necessarily produce, are indeed
a serious calamity." The amount of these failures, for the
last two months, adds ~Ir. Niles, is said to be more than
three millions of dollars.
There were also failures in New York, and many of the
operative manufacturers of Philadelphia were deprived of
employment.
'l-'hroughout the year business was very vacillating. In
the latter part of it, there appears to have been another sudden shock given to trade; for it is mentioned in the United
States Gazette of December 13th, that some species of cotton and woollen goods had fallen fi fty per cent. in the course
of a few weeks.
Bills on London, which were at 11l~ a 112~, in February, 1822, were quoted in the Philadelphia Gazette of May
14th, 1823, at 1041' The true par being, according to
Mr. Gallatin, seven per cent. above the nominal par, the
foreign exchanges were decidedly in favor of the country.
A combination of causes compelled the Banks to be cautious this year in their operations. The condition of things
in the Southern and Western parts of the Union, prevented the United States' Bank from extending its deaiings as
far as it desired. The Pennsylvania Banks felt the uncertainty of their fate. The charters of many of them were
about expiring, and applicat.ions for a renewal of them, made
to the Legislature in the sessions of 1821-22, and 1822-23,
179
180
hundred thousand dollars. Nine million dollars were subscribed in April to the New York WaterWorks Company,
and by some contrivance its script was raised in the market
to thirty per cent. above par. Thirteen millions were subscribed in May to the stock of the Delaware and Raritan
Canal Company. Between the 5th and the 16th of February, the stock of the New York Gas Company advanced
28 per cent., and was sold at 178.
It was not alone in dealings in the stocks of chartered
companies that great activity prevailed. l\'Iore commercial
business was said to have been done in Philadel?hia, in the
month of February, than in anyone month of the preceding ten years. The Banks were liberal in their discounts,
and the spirit of speculation showed itself in various forms.
While the public mind was in this state, seven expresses
arrived at Philadelphia from New York il~ one day (April
9th) with news of a great rise of prices in the markets of
Liverpool and London. The effect was electric. Twentyseven cents \vere offered for Up)and cotton, and refused,
though the holders would, a week before, have been happy
to obtain twenty cents. Cotton yarn, No. ]5, rose from 35
to 45 cents. l\luscovauo sugars advanced a dollar a hundred.
St. Domingo coffee rose from 17~ to 21 cents a pound.
Quercitron bark rose from 27 dollars a ton to 35 dollars.
'l."he rise in the prices of tobacco, drugs, and spices, was
very considerable.
Every body was in haste to grow rich: and the cotton
dealers were regarded with special envy. It was currently
rumored that such a man had made 20,000 dollars in one
day; such another, 30,000 ; such another, 40,000, and such
another 50,000. Some firms, if reports were to be believed,
had realized 100,000; while the computed or prospective
gains of others were swelled to nearly half a million.
In New York, the speculations were carried to a much
greater extent than in Philadelphia; and despatches sent
to the South spread the infection through all that region.
The Charleston Patriot, to show the state of feeling, men..
tioned that "the same parcel of cotton had changed owners six or seven times within a week, without leaving the
hands of the factor." It was in this year, that the growing crop of corn was rooled up in some parts of the South.
ern States, to make room for new plantations of cotton.
1820-21
TO
1825-26.
181
182
183
184
those of Great Britain: but when the causes of the variations of Bank medium operate simultaneously in both
countries, the effects are very striking.
'fhe state of confidence between man and man, and the
state of the currency in some parts of the Union, were not
such as to admit of as great an increase of Bank medium
in the United States as took place in England in 1824 and
1825. The effects of the great reaction of 1818-19 were
not yet over. In Kentucky, society was in a state bordering on anarchy. In Alabama and Tennessee, the paper
of the local Banks was much below par. Ohio, Indiana,
Illinois, and Missouri had not recovered from the effects of
the relief system. 'The currencies of Georgia and North
Carolina were very vacillating. The city Banks of New
York had for two years, beginning with the summer of
1823, been endeavoring to restrict the petty Banks of
their neighborhood, and in so doing bad limited their own
circulation. In New England there was a war between
the allied Banks of Boston and the country Banks, which
caused a great pressure for money in the Eastern States,
in the month of May, or at the very time when there was
so much commercial activity in the southern cities. In
the interior of Pennsylvania, the sheriffs had not yet got
through the duty of selling the estates of those who had
been made bankrupt by the operations of the years 1818
and 1819.*
'Vhile the country was in this condition, it was impossible for Banks maintaining specie payments to make any
great addition to their issues. In point of fact, the actual
increase of Bank currency in 1824 and 1825, appears not
to have been very great: but the state of affairs was not
such as to admit of any increase of credit dealings, without
'if The Sheriff of Adams County advertised thirty-three estates for
sale in the month of May. The Juniata Gazette, on one day or July,
contained thirty-two advertisements by the Sheriff. The Sheriff of
Fayette, in the month of June, offered for sale 118 tracts of lalld, containing 45,000 acres, or one-eleventh part of the cOllnty. Most of this
was the property of one person. In the sallie month the Sheriff of
Bedford offered for sale twenty-three estates, and the Sheriff of 'Veslmoreland, twenty-six. In December, 48 estates, cOl1taining together
3342 acres of land, with farm houses, barns, grist mills, and other improvements, belonging to thirty-one differellt persons, were offered for
sale by the Sheriff of Berks.
BANKING FROM
1820-21 TO 1825-26.
185
186
BANKING FROM
1820-21 TO 1825-26.
BANKING FROM
182G-27 TO 1828-29.
187
CHAPTER
xx.
188
BANKING FROM
182627
TO
1828-29.
BANKING FROM
1826-27 TO 1828-29.
189
scarcities of money, independent of the operations of Banking institutions. But we have enjoyed peace for seventeen years in succession. !\rlost other commercial countries have been in the enjoyment of peace. It has, therefore, become impossible to conceal from observers, the effects which paper money Banking institutions have on commercial affairs. That the scarcity of money in 1828 was
owing to their operations, was so evident, that no body
doubted, nobody disputed it. No other cause could be assigned for it. And lUr. Biddle, the President of the United
States' Bank, published an essay in the National Gazette,
on the 10th of April, in which he gave the following elegant and lucid exposition of one of the causes of the evils
the community was then suffering.
" The question is, what is the cause and the nature of
the present scarcity of money ~
" The answer is easy.
" The currency of the United States consists of coin, and
of Bank notes promising to pay coin. As long as the
Banks can always pay the coin they promise they are useful, because, in a country where the moneyed capital is disproportioned to the means of employing capital, the substitution of credits for coins enables the nation to make its
exchanges with less coin, and of course, saves the expen~e
of that coin. But this advantage has by its side a great
danger. Banks arc often directed by needy persons, who
borrow too much, or by sanguine persons, anxious only to
increase the profits, without much pecuniary interest or
personal responsibility in the administration. The constant
tendency of Banks is, therefore, to lend too much, and to
put too many notes in circulation. Now, the addition of
many notes, even while they are as good as coin by being
always exchangeable for coin, may be injurious, because
the increase of the mixed mass of money generally.occasions a rise in the price of all commodities. The consequence is, that the high price of foreign productions tempts
foreigners to send a large amount of their commodities,
while the high price of domestic productions prevents these
foreigners from taking in exchange a large amount of our
commodities. When, therefore, you buy from foreigners
more than they buy from you, as they cannot take the paper
part of your currency, they must take the coin part. If
190
BANKING FROM
1826-27
TO
1828-29.
191
192
BANKING FROM
1826--27 TO 1828--29.
BANKING FROM
1826--27 TO 1828--29.
193
194
BANKING FROM
1826-27 TO 1828--29.
BANKING FROM
195
196
BANKING FROM
CHAPTER XXI.
197
cial embarrassments, even when there is no very great demand for specie forexportation. We have seen that the
war between the allied Banks of Boston and the country
Banks, produced a great scarcity of money in New England, in May 1825, or at the very time when speculation
was most active in the Middle and Southern States. The
President of the United States' Bank speaks of the " reaction, as it is called," taking place in Philadelphia, " in
October." But the newspapers make mention of the pres~
sure in July, and it is well known that it is not till some...
time after great pressures begin, that mention is made of
them in the public journals. Taking into consideration
the facts that the pressure was felt here some four or five
months before the crisis in England, that exchanges were
in favor of this country, and that during this time the English country Banks were, according to Lord Liverpool, increasing their issues, we are inclined to think that some
(lther cause besides the foreign demand for specie must have
contributed to the reaction of ] 825-at least so far as it'
affected the United States' Bank, and through it the other
Banks and the community. We have a cause adequate to
the effect, in the loans of ten million dollars made by the
Bank to the Government in 1824 and 1825. The amount
may not be large, abstractedly considered, but a paper money Bank which has been doing business for several years,
can seldom 1 unless it has a surplus stock of specie, make
loans for a long period, without being afterwards forced to
resort to such measures as operate with great hardship on
its regular customers. " The constant tendency of Banks/'
as Mr. Biddle has correctly observed, " is to lend too much
-to put too many notes in circulation." And the Bank
of the United States, after having lent as much as it could
to private traders, strained its credit and resources to lend
to Government, and thereby put more notes in circulation
than the state of trade required.
The peculiar force with which the pressure of 1825 operated on the United States' Bank, strengthens this reasoning. It receives additional corroboration in the fact that
the rp.action was over in the United States much sooner
than in England: and also in the fact that the exp~)lts of
gold and silver in the year 1825, exceeded the imports in
198
18-24
TO
1829.
only the small sum of 2,600,000 dollars, the imports for the
year being $6,150,785, and the exports $8,787,055.
It must, indeed, be admitted that a very small export of
specie sometimes produces very great confusion. Mr. Carey,
in a work published in 1810, says-" The merchants engaged in the trade to the East Indies, mad'e application last
spring to the Bank of the United States for dollars to remit
there, and offered a premium of one per cent. The directors took the matter under consideration, and with liberality resolved to furnish the necessary sums without premium
What was the exact amount I cannot state, but I have reason to believe it exceeded half a million of dollars. 'rhey
were applauded for their liberality. But, however extraordinary it may appear, the effect of the operation was absolutely to impel some of the other Banks to curtail their discounts considerably."
If our currency was metallic, the exportation of ten or
twenty millions of gold and silver, would have no more effect on the general train of commercial operations than the
exportation of so many dollars' worth of iron and copper,
for the exportation of specie would never commence till
the domestic demand was fully satisfied. But, now, the
fitting out of a single East India ship, may derange the
trade of a city: and diminishing the ordinary stock of specie in the amount of only two or three millions, may derange the trade of the country.
This may appear strange at first view, but Mr. Biddle,
in his Address to the Stockholders of the United States'
Bank, in September 1831, gives us very satisfactory reasons why a cause, apparently so very trifling, should produce so very great an effect. "It is the peculiarity of our
moneyed system, that in many parts of the country the
precious metals are excluded from the minor channels of
circulation by a small paper currency, in consequence of
which the greater portion of these metals is accumulated
in great masses in the Atlantic cities, liable to be immediately demanded on notes previously issued in the confidence
of the continuance of the same state of things which caused
the abundant issue of them; at the first tUfn in the tide of
foreign exchange-when the supply of foreign exchange is
unequal to the daily demand, the vaults of the Banks may
be exhausted before .any precaution can prevent it. These
BANKING FROM
1824 TO 1829.
199
very precautions too, consisting as they do almost exclusively of curtailment of their loans, made suddenly-mostly without concert, and always under the influence of anxiety if not of alarm, may fall with oppressive weight on the
community, by the pressure in which alone can be produced the necessary reaction.
200
BANKING FROM
1824
TO
1829.
BANKING FROM
1824 TO 1829.
201
202
CHAPTER XXII.
BANKING FROM
1829-30 TO 1832-33.
203
tend its dealings in domestic exchange.s. This it naturally preferred to increasing its business in other commercial
securities, as on theseit received only discount, whereas on
bills of exchange it recei\'ed both discount and premium.
Being the depository of the public funds in various parts
of the Union, it possessed great advantages for dealings
in exchange, especially as the greater .part of the public revenues was recei\ied in those cities which had naturally
the rate of exchange in their favor. The operations of the
Bank in its exchange dealings are thus described by its
President.
"The crop or Tennessee is purchased by merchants
who ship it to New Orleans, giving their bills founded on
it to the branch of Nashville, which furnishes them with
notes. These notes are in time brought to New York
for purchasing supplies for Tennessee. They are paid in
New York, and the Nashville Bank becomes the debtor of
the branch at New York. 'rhe Nashville branch repays
them by drafts given to the branch at New York on the
branch at New Orleans, where its bills have been sent, and
the branch in New York brings home the amount by selling its drafts on the branch at New Orleans: or the New
Orleans branch remits. This very plan of circulation, is
the basis of the whole interior trade of the United States."
The true basis of the interior trade of the United States,
is the fertility of the soil and the industry of the people.
The sun would shine, the streams would flow, and the earth
would yield her increase~ if the Bank of the United States
was not in existence. What is now performed by it in
the way of exchange dealings, would, if there were no
corporations, be as well performed by private exchange
merchants. Perhaps they could not perform it at quite
as low a rate, for they would have to provide a capital
of their own, whereas the United States' Bank performs
it by the control it has of the public deposits, and by
means of the credit its charter gives it in different States.
Employing no capital of its own in the business-the
whole affair being a mere paper transaction between the
Bank and its branches, it may well afford to do it cheap.
It may, however, be questioned, if the reduction of the
price of exchange below its natural rate, is an equivalent
for the evils which must necessarily ensue from the substi
204
BANKING FROM
1829--30 TO 1832--33.
205
206
20'7
208
BANKING FROM
1829-30 TO 1832-33.
209
210
BANKING FROM
1829-30 TO 1832-33.
211
duties to the Government. Nothing, therefore" can contribute more efficiently to an increase of imports.
" The large importations must have been founded, so far
as the Bank was concerned, on the state of things in this
This is unquestiona-
ble, and the state of things in this country was then affected by the new system of operations begun by the Bank in
1827. Between the two dates mentioned in the extract,
the net circulation of the United Sates' Bank was increased
from 13,780,847 to 16,933,122~ or about twenty-two per
cent., and though.the increase in the circulation of the local Banks may not have been in the same proportion, there
is reason to believe it was considerable. It may be admitted that the state of trade in Europe, and, perhaps, the Cholera, tended to swell the importations, but any disposition
to over-trading thereby induced', would, if we had been without fooneyed corporations and without paper money, soon
have been checked by the necessity of paying cash, or at'
least making engagements to pay in specie.-The President of the Bank proceeds as follows:
" Without having contributed to produce them, the Bank
found, .about nine months ago, large importations, requiring
for their diffusion through the country, increased facilities
connected with Banking: having the means of giving them,
-being in fact created for the purpose of giving them-it
gave them; it had the means of giving, because, in the
early part of the year, it had been strengthened for business, purposely, by the addition of two millions of its funds
in Europe transferred home, by the repayment of about ten
millions of the funded debt paid back by Government since
October, 1830, making an increase of active means amounting to twelve millions. When, in the progress of a few
months, the continuance of these importations, and the revenue which had accrued on them, produced an effect In
the actual state of the market, the Bank applied itself immediately to correct any disadvantages from it to the community. "fhe actual position of things was simply this:
There were large importations requiring means of remittance to Europe to pay for them: there were large amounts
of revenue to Government, amounting in New York alone,
from ~t:arch 1831, to ~larch 1832, to nearly seventeen
million dollars, requiring great forbearance towards the
212
213
214
215
216
BANKING FROM
1829-30 TO 1832-33.
217
218
219
CHAPTER XXIII.
operations of the Banks. l\Ir. Bland, a member of Congress from ~faryland, in a speech made previous to the
dissolution of the old Bank of the United States, said,
"The nature of the loans, the deposits, and all the bargains,
dealings, and contrivances, between the Government and
the Bank, are wholly invisible to the public."
Dr. Bollman, who undertook the defence of the Bank,
after mentioning that the nature of Banking operations
was but little understood, spoke of "an idea prevailing
with those whom curiosity and a turn for research has led'
to investigate the subject more deeply, that the interest of
of these institutions, as well as their usefulness, required
the preservation of what they deem salutary prejudices
concerning them." The Doctor justified such revelations
as he made by the necessity of the case.
"I have labored," says l\1r. Carey, who was embarked in the same cause," under a most discouraging destitution of materials. Those whose province it was to
furnish them. have most cautiously forborne from the communication, in the most extraordinary manner."
In another sentence he says, "The obligation of secrecy in Banking transactions, precludes a writer who undertakes the defence of such an institution, from many of
the most important data, on which his reasoning may depend. *' *' *' Were I possessed of a statement of the
specie in the different Banks of Philadelphia-and were
it proper to disclose it."
For many years this veil of mystery was not removed;
if, indeed, it can now be said to be removed. "I have
found" said 'A Fnenly :Monitor,' writing in 1819, "considerable embarrassment in obtaining the most simple information in relation to the Bank (i. e. the present Bank
of the United States.) If. I ask a director, the seal of his
finger is significantly impressed on his lips. There is a
species of masonry in Banking which to a certain extent
is highly proper and necessary. It implies a mutual pledge
220
$62,000,000
110,000,000
45,000,000
221
222
223
]5
21
26
28
66
6
8
8
10
14
10
15
10
8
2
13
14
Connecticut, -
10
16
10
30
8
18
18
10
47
8
3
4
26
27
33
37
II
11
4:3
14
18
36
33
10
7
16
Ma'isachusetts,
Maine, New Hampshire, Vermont,
Rhode Island,
if
42
5
13
1
2
224
1830.~:=
17
10
4
20
10
12
14
13
4
13
5
2
3
5
3
3
5
4
5
9
4
1
4
2
21
2
2
12
3
1
8
42
20
2
2
1
9
4
1
1
II
9
4
10
2
2
1
2
3
9*
43
20
2
2
2
1
---- -- ---88
208 246 307 330 165
We have another list, which contains the names of twenty-eight broken Banks not mentioned in Mr. Gallatin's table, viz. one in Massachusetts, one in Maine, three in New
York, three in Pennsylvania, one in Delaware, one in the
District of Columbia, two in Virginia, one in Georgia, four
in Kentucky, eight in Ohio, one in Indiana, one in Illinois,
and one in Michigan. Even this, however, does not appear to be complete. No list has yet been published of the
number of Banks in operation in the first six months of
1818, which was the time the mania reached its height;
and Mr. Gallatin, with all his industry, has not been able
to give a complete list of all the Banks which were in operation in the years mentioned in the above table. There
were, for example, two if not three Banks in Missouri in
the year 1820.
Mr. Gallatin's estimate of the capital of the Banks, the
notes in circulation, and specie in their vaults, at different
periods, is as follows:
Capital.
Circulation.
52.610,601 28,100,000
82,259,590 45,500,000
89,822,422 68,000,000
Specie.
15,400,000
17,000,000
19,000,000
137,110;611 44,863,344 19,820,240
145,192,268 61,323,898 22,114,917
1816,
1820,
1830,
~
225
226
GENERAL REFLECTIONS.
227
CHAPTER XXIV.
Genet'al Reflections.
Our American Bankers have found that for which the
ancient alchymists sought in vain; they have found that
228
GENERAL REFLEOTIONS.
GENERAL REFLECTIONS.
229
But,
230
GENERAL REFLECTIONS.
States' Government.
Though paper emissions under a
general authority, might have some advantages not applicable, and be free from some disadvantages which are
applicable, to the like emissions by the States, separately,
yet they are of a nature so liable to abuse-and it may
even be affirmed, so certain of being abused-that the
wisdom of Government will be shown in never trusting
itself. with the use of so seducing and dangerous an expedient. In times of tranquillity it might have no ill-consequence; it might even perhaps be arranged in a way to be
productive of good: but in great and trying emergencies,
there is almost a moral certainty of its being mischievous."
Government issues of paper would be incentives to extravagance in public expenditures in even the best of times;
would prevent the placing of the fiscal concerns of the
country on a proper basis, and would cause various evils.
Nor is a system of Banking in which the Government should
deal in exchanges, after the manner of the present Bank
of the United States, at all desirable. It would be as
reasonable in a man to wi~h his flour transfarred from
Pitt8burg to Charleston by the public officers, a~ to wish
his money transferred through such a medium from St.
Louis to Philadelphia. To manage its own fiscal concerns,
and manage them well, is as much as is in the power of
any Government. The financial operations of the United
States' Government should be strictly limited to the collecting, safe-keeping, and disLursing of the public moneys, and
the transferring of them from the places where they are
collected to the places where they are disbursed. Further
than this, Government should have no more concern with
Banking and brokerage than it has with baking and
tailoring.
Why should ingenuity exert itself in devising new modifications of paper Banking? The economy which prefers
fictitious money to real, is, at best, like that which prefers
a leaky ship to a sound one. With private bankers trading on metallic money, and with public offices of transfer
and deposit, we can secure all the good of the present system, and get rid of all the evils.
A reform will not, however, be accomplished, as some
suppose it may, by granting charters to all who apply for
them. It would be as rational to attempt to abolish a
political aristocracy by multiplying the number of nobles.
GENERAL REFLECTIONS.
231
232
GENERAL REFLECTIONS.
GENERAL REFLECTIONS.
233
ed in the history of the country, from the time of the introduction of paper money into Massachusetts, up to the present day. Let any man think on the wrongs that were inflicted by the instrumentality of provincial paper moneyof the many thousand familes who were ruined by continental money, and who lie in ruins to this day-and of
the multitudes who have been reduced to poverty by various Banking processes. Let him then trace the system in
its remote consequences-in its effects on morals-on manners--on education-on happiness. Let him consider that
the same causes being now in operation must produce the
same effects, and he will, if he has one spark of real patriotism in his breast, be willing to make any exertion which
will not interfere with his duty to himself and t~ his family.
If the work were once fairly begun, assistance might,
perhaps, be obtained from some quarters, from which, OIl a
first view, the most violent opposition might be feared.
There are strong indications of dissatisfaction in the official reports of some of the Banks. From the language they
use in private conversation, no men appear to have
clearer views of the evils the public suffer, than some
of the officers of these institutions. 'They have comformed
to a system which they found established in the country,
but if a sincere desire should be evinced by the people to
introduce a better system, not a few Presidents, Cashiers
and Directors may be found willing to yield all the aid that
lies in their power.
There are reasons, besides those which spring from patriotic motives, which should make men of property very
desirous to see the foundation laid of a system of sound credit and sound currency. They now hold their wealth by a
very uncertain tenure. It may pass from them as rapidly
as it came to them. In one respect the comparison of paper Banking with steam power is an apt one. The danger
of an explosion is very great, and the effects of an explOsion would be tremendous.
The attempts at corrective legislation which the ~uffer
ings occasioned by paper Banking are sure to induce, offer
other motives for reflection to men of property. The" re..
lief system" of the West, and the "tariff system" of the
East, are but specimens of what is to be expected. As it
has become a kind of principle that when the evils pro:'
234
G.ENERAL REFLEcTIONS.
GENERAL REFLECTIONS.
235
stock, whatever that may be, and Inore than this they are
not entitled to. Many of the officers of Banks will be subjected to little inconvenience, as it is to presumed that,
under a better system, their talents and industry will in..
sure them as ample a reward as they receive at present.
When the work is done, the condition of the country
APPENDIX.
Petitions from a considerable number of the inhabitants of Chester County were read, representing that the Bank established at
Philadelphia has fatal effects upon the community; that while men
are enabled, by means of the Bank, to receive nearly three times
the rate of common interest, and, at the same time, to receive their
money at very short warning, whenever they have occasion for it,
it will be impossible for the husbandman and the mechanic to borrow on the former terms of legal interest and distant payment of
the principal; that the best security will not enable the person to
borrow; that experience clearly demonstrates the mischievous
consequences of this institution to the fair trader; that impostors
have been enabled to support themselves in a fictitious credit, by
means of a temporary punctuality at the Bank, until they have
drawn in their honest neighbors to trust them with their property,
or pledge their credit as securities, and have been finally involved
in ruin and distress; that they have repeatedly seen the stopping
of discounts at the Bank operate on the trading part of the com..
munity, with a degree of violence scarcely inferior to that of the
stagnation of the blood in the human body, hurrying the wretched
merchant who hath debts to pay into the hands of griping usurers;
that the Directors ofthe Bank may give such preferences in trade,
by advances of money, to their particular favorites, as to destroy
the equality which ought to prevail in a commercial country; that
paper money has often proved beneficial to the State, but the Bank
forbids it, and the people must acquiesce: therefore, in order to
restore public confidence and private security, they pray that a
bill may be brought in and passed into a law for repealing the law
for incorporating the Bank.
March 28.-The report of the committee, read March 25, on
the petitions from the counties of Chester and Berks, and the city
of Philadelphia and its viciuity, praying the Act of Assembly
whereby the Bank was established at Philadelphia, may be repealed, was read a second time as follows, viz:
The committee to whom were referred the petitions concerning
238
APPENDIX.
APPENDIX.
239
passed the 18th of March 1782, entitled, " An Act for preventing
and punishin2 the counterfeiting of the common seal, Bank bills,
and Bank notes of the President, Directors, and Company, of the
Bank of North America, and for the other purposes therein mentioned."
The opinion the Legislature of 1786 had of grants to corpora.tions, may be judged of by the following extract from a speech by
Mr. SmilIe.
"There are charters so sacred that they cannot be revoked.
But there is a material distinction between charters, and the opinions of many have been very wrong on that head. When once
an error is taken up, men go on a long time in delusion. There
are many things which we now consider as absurd, which were
formerly venerated, for want of being properly considered. The
doctrine of hereditary right, which is now held odious, was once
deemed sacred. There is a strong reason why persons from Europe are so highly prejudiced in favor of charters. In the twelfth
and thirteenth centuries, Europe was in the lowest state of vassalage-the people were in some measure rooted to the soil, and
sold with it. While affairs were in that situation, the kings and
powerful barons granted charters of incorporation to towns and
cities, thereby exempting them from the common vassalage of the
state, and bestowing on them particular immunities; thus giving
them political existence. These charters were sacred, because
they secured to the persons on whom they were bestowed their
natural rights and privileges. But, there are, sir, charters of a
very different nature. And here it is necesEary to fix the point
of distinction. Charters are rendered sacred, not because they
are given by the Assembly or by the Parliament, but by the objects for which they are given. If a charter is given in favor of a
monopoly, whereby the natural and legal rights of mankind are
invaded, to benefit certain individuals, it would be a dangerous
doctrine to hold that it cannot be annulled. All the natural rights
of the people, as far as is consistent with the welfare of mankind, are secured by the Constitution. All charters granting exclusive rights, are a monopoly on the great charter of mankind."
Mr. Lollar said, "the House which granted it (the charter) entertained no idea of its being for a perpetuity, or of its being out
of the power of the Assembly to alter or new-model it, as they
might see fit. In support of this, Mr. Lollar quoted the minutes
of that House, where it appeared that a clause had been introduced as a rider to the bill, for the purpose of empowering the Assembly that should sit in 1789, to alter or amend the charter as
might be necessary. This was rejected by twenty-seven to twenty-four, and the express reason assigned for the rejection was, that
the charter of the Bank must necessarily be always in the power
of the House."
240
APPENDIX.
" What is all this to us 1" said Mr. Morris in reply. " Are we
to regulate our conduct by the private opinions of former members
of Assembly 1"
The friends of the Bank maintained, that the Legislature had
no power oTer a charter once granted, and that the courts of law
alone had power to declare a charter forfeited.
There are traces of a Bank in Virginia, previous to the establishment of the Bank of North America, but we have not been
able to learn any thing satisfactory concerning its character.
NOTE.-This work has been printed in about half the time usually employed in printing works of this size, in consequence of
which some typographical errors escaped correction. Of these it
is proper to note the following:
PART I.
Page 18 line 21, for equivalent, read equivalents
22
26, for creditors, read credits.
24
1, for exchanged, read exchangeable.
55
23, for first. read second.
91
18, for reflux, read reflex.
103
2, for Bank, read back.
107
28, for currently, read concurrently.
120
23, for this, read they.
30, for discreditable, read indestructible
PART II.
Page 24 line 18, for appeared, read appear.
55
17, for Banks, read Bank.
80
3, for Banks, read Bank.